Q: If the price is $$50 and the average total cost at 4 units is 60$$, what is the profit or loss? $$Profit = (P - ATC) \times Q$$

$$Profit = (50 - 60) \times 4 = -40$$

Question 1

Given the following production costs for edible underpants:

Quantity: 0, 1, 2, 3, 4, 5
Total Fixed Costs: 100 (for all quantities)
Total Variable Costs: 0, 50, 70, 90, 140, 200

If the market price is $$50 per unit, what is the marginal cost of producing the third unit?

MC_3$ = $$TVC_3$$ - $$TVC_2$

Accepted Answer

$$MC_3 = 90 - 70 = 20$

Question 2

If the price for a pair of edible underpants is $$50, and the firm produces 4 units, what is the firm's total revenue?

TR = P$$ 	imes Q$

Accepted Answer

$$TR = 50 	imes 4 = 200$$

Question 3

Using the cost data provided, what is the average total cost (ATC) of producing 2 units?

$$ATC = \frac{TFC + TVC}{Q}$$

Accepted Answer

$$ATC = \frac{100 + 70}{2} = 85$$

Question 4

If the firm produces 3 units, what is the total cost (TC)?

$$TC = TFC + TVC$$

Accepted Answer

$$TC = 100 + 90 = 190$$

Question 5

Suppose the firm produces 4 units and sells each at $$50. What is the firm's profit or loss?

$$Profit = TR - TC$

Accepted Answer

$$Profit = 200 - 240 = -40 ($$loss)

Question 6

At what output level is the loss minimized for the firm if the price is $50 per unit?

Accepted Answer

Produce 4 units

Question 7

If the price is $$50 and the average variable cost (AVC) at 2 units is 35$$, should the firm continue to produce in the short run?

$$AVC = \frac{TVC}{Q}$$

Accepted Answer

Yes, because price exceeds AVC

Question 8

If the firm shuts down in the short run, what cost does it still incur?

Accepted Answer

Total fixed cost

Question 9

If the firm produces 0 units, what is its total loss?

$$Loss = TFC$$

Accepted Answer

$$Loss = 100$$

Question 10

If the price is $$50 and the average total cost (ATC) at 1 unit is 150$$, what is the profit or loss from producing 1 unit?

$$Profit = TR - TC$$

Accepted Answer

$$Profit = 50 - 150 = -100 ($$loss)

Question 11

If the firm produces 5 units, what is the marginal cost of the fifth unit?

$$MC_5$$ = $$TVC_5$$ - $$TVC_4$$

Accepted Answer

$$MC_5 = 200 - 140 = 60$

Question 12

If the firm is making a loss but price is greater than average variable cost, what should it do in the short run?

Accepted Answer

Continue producing to minimize losses

Question 13

If the price is $$50 and the average total cost at 4 units is 60$$, what is the profit or loss?

$$Profit = (P - ATC) 	imes Q$$

Accepted Answer

$$Profit = (50 - 60) 	imes 4 = -40$$

Question 14

If the firm produces 2 units, what is the average variable cost (AVC)?

$$AVC = \frac{TVC}{Q}$$

Accepted Answer

$$AVC = \frac{70}{2} = 35$$

Question 15

If the firm produces 1 unit, what is the total cost?

$$TC = TFC + TVC$$

Accepted Answer

$$TC = 100 + 50 = 150$$

Question 16

If the firm produces 3 units, what is the average total cost (ATC)?

$$ATC = \frac{TC}{Q}$$

Accepted Answer

$$ATC = \frac{190}{3} \approx 63.33$$

Short-Run Production Decisions and Profit Calculation in Perfect Competition

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