ECOCase 3 solved

1. The following table gives short-run and long-run total costs for various levels of output for a perfectly competitive firm:

Output (Q)SRTCAVCTR

0350  

1400  

2425  

3465  

4505  

5560  

6635  

7730  

Note: AVC is Average Variable Cost

TR is Total Revenue

SRTC is Short Run Total Cost

SRTC = FC + VC (Total Cost = Fixed Cost + Variable Costs)

Please see background material for additional formulas.

1. Suppose the fixed cost (FC) of production is $350 and Price (P) is $55, complete the table above. (Cut and paste the table into a separate document).
2. Suppose you are producing 2 units of output (Q = 2), if you want to produce one extra unit of output (Q = 3), what would be the marginal cost? (Show your work.)
3. If the market price is given as $55, how much output will the perfectly competitive firm produce to maximize profits? (Show your work.)
4. Calculate the profit or loss. (Show your work.)
5. Should the firm always shut down in the short run when it experiences a loss? Explain.

ECOCase 3 solved

The following table gives short-run and long-run total costs for various levels of output for a perfectly competitive firm: Output (Q) SRTC AVC TR 0 350 1 400 2 425 3 465 4 505 5 560 6 635 7 730 Note:...

• Perfect Competition-1.docx 16 KB