Perfectly competitive firm’s cost functions

Assignment No. 3

Course:

Econ-101

Student name:

 

Academic Year

1438-1439 H

Students number:

 

Semester:

I1nd

Student grade:
CRN:  

INSTRUCTIONS

· Date of upload on Blackboard: April 16, 2018

· Submission Deadline: April 23, 2018

· Late submission will result in ZERO marks being awarded.

· This Assignment must be submitted on Blackboard (WORD format only) via the allocated folder.

· Email submission will not be accepted.

· The work should be your own, copying from students or other resources will result in ZERO marks.

Question:

1) Use the graph below of a perfectly competitive firm’s cost functions to answer this set of questions.

 

 

 

 

 

 

 

 

 

a) In the short run, what is the fixed cost for this firm? Explain your answer fully.

b) Suppose this firm produces 30 units of output. What is the variable cost of producing this level of output? What is the firm’s AVC of production when it produces 15 units of output. Explain your answer fully.

c) Find the break-even price and the shutdown price. What would happen if the market price was equal to $1 per unit?

d) Suppose the market price of the good in the short-run is $8 per unit.

i. Does the firm maximize its profit by producing 10 units? If no, which quantity maximizes the firm’s profit. Explain your answer fully.

ii. Given the breakeven price, do you think that the firm is earning a positive or a negative profit when the market price is equal to $8?

iii. On the graph indicate the area that represents profits (losses).

e) What do you predict will happen in the long-run in this market?

MC

 

Price

Cost

 

 

ATC

 

AVC

 

8

 

6

 

2

 

Quantity

 

40

 

10


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