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Economic profit, loss and shutdown

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Assume that the cost data in the top table of the next column are for purely competitive producer: *TP= Total Product; *AFC= Average fixed Cost; *AVC= Average Variable Cost; *ATC= Average Total Cost; *MC= Marginal Cost TP AFC AVC ATC MC 0 1 $60.00 $45.00 $105.00 $45.00 2 $30.00 $42.50 $72.50 $40.00 3 $20.00 $40.00 $60.00 $35.00 4 $15.00 $37.50 $52.50 $30.00 5 $12.00 $37.00 $49.00 $35.00 6 $10.00 $37.50 $47.50 $40.00 7 $8.57 $38.57 $47.14 $45.00 8 $7.50 $40.63 $48.13 $55.00 9 $6.67 $43.33 $50.00 $65.00 10 $6.00 $46.50 $52.50 $75.00 A). At a product price of $56, will this firm produce in short-run? If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? What economic profit or lose will the firm realize per unit of output? B). Answer the question of 4a (above question) assuming the product price is $41

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Solution Summary

This solution shows how to calculate a perfectly competitive firm's maximum profit and loss and determine whether the firm should produce or shut down in the short run. All calculations are given in full in an Excel spreadsheet.

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See the attached file for the calculations.

>A). At a product price of $56, will this firm produce in short-run?

Yes. The firm maximizes its profit when P = MC. The closest the firm can get to that is by producing 8 units, when MC = 55 and P = 56. At that level of ...

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