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Calculating profit/loss in the given cases

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Answer the next questions on the basis of the following cost data for a firm in pure competition:

OUTPUT ------ TFC ---------- TVC
0 $100.00 0.00
1 100.00 70.00
2 100.00 120.00
3 100.00 150.00
4 100.00 200.00
5 100.00 270.00
6 100.00 360.00

(a.) Refer to the above data. If the product price is $25, at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.

(b.) Refer to the above data. If the product price is $55, at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.

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Solution Summary

Solution depicts the steps to calculate profit/loss in the given cases for a purely competitive firm.

Solution Preview

Please refer attached file for better clarity of table.

Output,Q TFC TVC Marginal Cost
MC*
0 100 0
1 100 70 70
2 100 120 50
3 100 150 30
4 100 200 50
5 100 270 70
6 100 360 90

*MC=change in TVC/change in Q

(a.) Refer to the ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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