Behavior of a perfectly competitive firm
Not what you're looking for?
A manufacturer of electronics products is considering entering the telephone equipment business.
It estimates that if it were to begin making wireless telephones , its short-run cost functions would be as follows:
Quantity (Thousands) Average Variable Cost (AVC) Average Total Cost (ATC) Marginal Cost (MC)
9 $41.10 $52.21 $30.70
10 $40.00 $50.00 $30.10
11 $39.10 $48.19 $30.10
12 $38.40 $46.73 $30.70
13 $37.90 $45.59 $31.90
14 $37.60 $44.74 $33.70
15 $37.50 $44.17 $36.10
16 $37.60 $43.85 $39.10
17 $37.90 $43.78 $42.70
18 $38.40 $43.96 $46.90
19 $39.10 $44.36 $51.70
20 $40.00 $45.00 $57.10
a. Suppose the average wholesale price of a wireless phone is currently $50. Do you think this company
should enter the market? Explain.
b. Suppose the firm doesn't enter the market and that over time increasing competition causes the price to fall to $35.
What impact will this have on the firm's production levels and profits? Explain. What would you advise this firm to do?
Purchase this Solution
Solution Summary
Solution studies whether a company with the given cost structure should enter the competitive market at prevailing market price.
Solution Preview
a. Suppose the average wholesale price of a wireless phone is currently $50. Do you think this company
should enter the market? Explain.
Let us see the marginal cost column. We find that MC is less than average price i.e. $50 for output level of 18 thousand units.
Optimal level of output should be 18 thousand units. Any increase in output from this level will pull down the ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
- "Thank you"
- "Really great step by step solution"
- "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
- "Thanks Again! This is totally a great service!"
- "Thank you so much for your help!"
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.