Question 1 (4 points)
Below is data for a perfectly competitive firm (i.e., a price-taker):
Output Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost
0 —
1 $3,000 $900 $3,900 $900
2 $1,500 $800 $2,300 $700
3 $1,000 $700 $1,700 $500
4 $750 $600 $1,350 $300
5 $600 $500 $1,100 $100
6 $500 $550 $1,050 $800
7 $429 $600 $1,029 $900
8 $375 $650 $1,025 $1,000
9 $333 $700 $1,033 $1,100
10 $300 $750 $1,050 $1,200
If the prevailing market price is $800 per unit,
1. How much output should the company produce in the short run?
2. What is the profit earned?
Question 2 (4 points)
Below is data for a perfectly competitive firm (i.e., a price-taker):
Output Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost
0 —
1 $3,000 $900 $3,900 $900
2 $1,500 $800 $2,300 $700
3 $1,000 $700 $1,700 $500
4 $750 $600 $1,350 $300
5 $600 $500 $1,100 $100
6 $500 $550 $1,050 $800
7 $429 $600 $1,029 $900
8 $375 $650 $1,025 $1,000
9 $333 $700 $1,033 $1,100
10 $300 $750 $1,050 $1,200
If the prevailing market price is $300 per unit,
1. How much output should the company produce in the short run?
2. What is the profit earned?
Question 3 (2 points)
For each of the two previous answers, what do you expect to happen in the long run?
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