A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of $10, average total cost of $8, and ficed costs of $200. What are the firm's profit, marginal cost, and average varible cost respectively?
Firm's Profit $200
Marginal Cost $10
Average Varible Cost Respectively $6
$200, $10, and $6
How did you get that answer pam??
To find the firm's profit, we need to calculate its total revenue, total cost, and subtract the fixed costs.
Total revenue = average revenue * quantity
Total revenue = $10 * 100 = $1000
Total cost = average total cost * quantity
Total cost = $8 * 100 = $800
Profit = Total revenue - Total cost - Fixed costs
Profit = $1000 - $800 - $200 = $0
Therefore, the firm's profit is $0.
To find the marginal cost (MC), we need to determine the additional cost of producing one more unit. In a competitive market, marginal cost is equal to the average total cost (ATC) and the average variable cost (AVC).
Marginal cost (MC) = average total cost (ATC) = $8
Therefore, the firm's marginal cost is $8.
To find the average variable cost (AVC), we need to subtract the fixed costs from the average total cost.
Average variable cost (AVC) = average total cost (ATC) - fixed costs
AVC = $8 - $200 = -$192
Therefore, the firm's average variable cost is -$192.
To find the firm's profit, we need to use the formula:
Profit = Total Revenue - Total Cost
Given that the firm's average revenue is $10, and it is currently producing 100 units of output, we can calculate the total revenue as:
Total Revenue = Average Revenue * Quantity = $10 * 100 = $1000
Next, we need to calculate the total cost. The average total cost is given as $8, which includes both fixed and variable costs. As fixed costs are $200, we can subtract them from the average total cost to find the average variable cost:
Average Variable Cost = Average Total Cost - Fixed Costs = $8 - $200 = -$192
Since average variable cost cannot be negative, we assume that the fixed costs adequately cover the average total cost. Therefore, the average variable cost is zero.
Now we can calculate the firm's profit:
Profit = Total Revenue - Total Cost = $1000 - ($8 * 100) = $1000 - $800 = $200
So, the firm's profit is $200.
To find the marginal cost, we need to consider how the total cost changes as the firm increases the quantity of output by one unit.
Marginal Cost = Change in Total Cost / Change in Quantity
In this case, we are given the average total cost, but we can still estimate the marginal cost. As the average total cost is $8 for 100 units of output, and the total cost is given as:
Total Cost = Average Total Cost * Quantity = $8 * 100 = $800
Now, let's consider producing one additional unit, which would make the quantity 101. If the total cost for 100 units is $800 and the total cost for 101 units is $800 + Marginal Cost, we can find the marginal cost by solving for it:
$800 + Marginal Cost = Total Cost for 101 units
$800 + Marginal Cost = Average Total Cost for 101 units * Quantity (101)
$800 + Marginal Cost = $8 * 101
Marginal Cost = $808 - $800 = $8
Therefore, the firm's marginal cost is $8.
In summary:
- The firm's profit is $200.
- The firm's marginal cost is $8.
- The firm's average variable cost is $0 (assuming fixed costs adequately cover the average total cost).