# Eco Paper

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• Published : October 8, 2012

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Assume the unit-cost data shown in the Table 1 below is for a perfectly competitive poducer: (a)At a product price of \$32, will this firm produce in the short run? Why, or why not? If it does produce, what will be the firm’s profit-maximising or loss-minimising output? Explain. Specify the amount of economic profit or loss per unit of output. (b)Answer the questions of (a) on the assumption that product price is \$41. (c)Answer the questions of (a) on the assumption that product price is \$56. (d)Looking at Table 2, complete the short run supply schedule for the same firm, and indicate the profit or loss incurred at each output (columns 1 to 3). (e)Explain: “That segment of a competitive firm’s marginal-cost curve which lies above it’s average-variable-cost curve constitutes the short run supply curve of the firm.” Illustrate graphically (e)Again using Table 2, now assume there are 1500 identical firms in this competitive industry; that is, there are 1500 firms, each of which has the same cost data as shown here. Calculate the industry supply schedule (column 4). (g)Suppose the market demand data for the product is as shown in Table 3. What will the equilibrium price be? What will equilibrium output be for the industry? For each firm? What will profit or loss be per unit? Per firm?

Table 1

Total ProductAverage fixed costAverage variable costAverage total costMarginal cost 0
1
2
3
4
5
6
7
8
9
10\$60.00
30.00
20.00
15.00
12.00
10.00
8.57
7.50
6.67
6.00\$45.00
42.50
40.00
37.50
37.00
37.50
38.57
40.63
43.33
46.50\$105.00
72.50
60.00
52.50
49.00
47.50
47.14
48.13
50.00
52.50\$45
40
35
30
35
40
45
55
65
75