A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue so $10, average total cost of $8 and fixed cost of $200.
a. what is the profit?
b. what is the marginal cost?
c. what is its average variable cost?
d. is the efficent scale of the firm more than, less than, or equal to 100 units?
a. 10*100-8*100=200
b. because in a profit maximizing firm, firm will choose to sell product at the intersection of price, marginal revenue, and marginal cost. and also, in competitive market, marginal revenue=average revenue=price. thus marginal cost=marginal revenue=average revenue=10
c. average variable cost=variable cost/quantity supplied
variable cost= total cost- fixed cost=8*100-200=600
average variable cost=600/100=6
d. because the efficient scale is the point that intersection among marginal cost, price, and minimum average total cost. however, we can find that the average total cost is 8, price and marginal cost is 10. thus, the efficient scale of the firm is less than 100 units
a. The profit can be calculated as follows:
Profit = Total Revenue - Total Cost
Total Revenue = Average Revenue * Quantity = $10 * 100 units = $1000
Total Cost = Average Total Cost * Quantity = $8 * 100 units = $800
Profit = $1000 - $800 = $200
b. The marginal cost can be determined by calculating the change in total cost when one additional unit is produced. Since the total cost is $800 for 100 units and $808 for 101 units, the marginal cost would be $8.
c. Average variable cost can be found by subtracting fixed cost from average total cost. In this case, average variable cost can be calculated as:
Average Variable Cost = Average Total Cost - Fixed Cost
Average Variable Cost = $8 - $200 = -$192
d. The efficient scale of the firm refers to the level of output at which average total cost is minimized. Since the average total cost is $8 at the current level of 100 units, and there is no information indicating that it can be further reduced by producing more or less, we can assume that the efficient scale is equal to 100 units. The efficient scale is therefore equal to 100 units.
a. To calculate the profit, we need to subtract the total costs from the total revenue.
Total revenue = Average revenue x Quantity
Total revenue = $10 x 100 = $1000
Total costs = Total variable costs + Total fixed costs
Total costs = Average total cost x Quantity + Fixed cost
Total costs = $8 x 100 + $200 = $800 + $200 = $1000
Profit = Total revenue - Total costs
Profit = $1000 - $1000 = $0
Therefore, the profit is $0.
b. Marginal cost is the additional cost incurred from producing one more unit of output. In this case, since the firm is in a competitive market, the marginal cost equals the average variable cost.
Thus, the marginal cost is $8.
c. Average variable cost is the total variable costs divided by the quantity of output.
Average variable cost = Total variable costs / Quantity
Average variable cost = $800 / 100 = $8
Therefore, the average variable cost is $8.
d. The efficient scale of a firm is the quantity of output at which the average total cost is at its minimum. In this case, since the average total cost is $8 and the firm is producing 100 units of output, the efficient scale of the firm is equal to 100 units.
Therefore, the efficient scale of the firm is equal to 100 units.
a. To calculate the profit, we need to know the formula:
Profit = Total Revenue - Total Cost
Total Revenue = Average Revenue * Quantity
Total Cost = Average Total Cost * Quantity + Fixed Cost
Given:
Average Revenue = $10
Average Total Cost = $8
Fixed Cost = $200
Quantity = 100 units
Total Revenue = $10 * 100 units = $1000
Total Cost = $8 * 100 units + $200 = $1000
Profit = $1000 - $1000 = $0
Therefore, the profit is $0.
b. The marginal cost is the cost of producing one additional unit of output. In this case, the marginal cost is equal to the change in total cost when the quantity increases by one unit.
To calculate the marginal cost, we need to find the change in total cost with the increase in quantity by one unit. In this case, we know that the average total cost is $8 for 100 units. So, the total cost is $8 * 100 + $200 = $1000.
Now, let's calculate the total cost for 101 units:
Total Cost for 101 units = Average Total Cost * 101 + Fixed Cost = $8 * 101 + $200 = $1008
Marginal Cost = Total Cost for 101 units - Total Cost for 100 units = $1008 - $1000 = $8
Therefore, the marginal cost is $8.
c. Average variable cost is calculated by subtracting the fixed cost from the average total cost. In this case, the average variable cost can be calculated as:
Average Variable Cost = Average Total Cost - Fixed Cost
Average Variable Cost = $8 - $200 = -$192
However, average variable cost cannot be negative. It is important to note that there might be a mistake in the given information or calculations provided.
d. The efficient scale of the firm refers to the quantity of output at which it achieves the lowest average cost in the long run. In this case, we know that the average total cost is $8 for 100 units of output.
To determine if the efficient scale of the firm is more than, less than, or equal to 100 units, we would need additional information on the average total cost for different output levels. Without that information, we cannot determine the efficient scale of the firm.