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Short run equilibrium & units of output

If the total cost schedule for a perfectly competitive firm is and if market price is $60, how many units of putput will the firm produce?

a. 0 units of output because the firm shuts down
b. 2 units of output
c. 3 units of output
d. 4 units of output
e. none of the above

Output Total Cost
0 $10
1 60
2 80
3 110
4 165
5 245

A firm is in the short run competitive equilibrium. The price of a substitute item increases

a. The product price will rise
b. New firms wil lenter the market
c. Firms will begin earning economic profit
d. a & b
e. All of the above

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Solution Preview

1. d.
Because Marginal cost of the 4th output is $55, and that of the 5th is 80. The firm will choose to produce when marginal cost = ...

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