Assume the following cost data are for a purely competitive producer:
|
Quantity |
Average fixed cost($) |
Marginal cost ($) |
||
|
0 |
||||
|
1 |
60 |
45 |
$45 |
|
|
2 |
30 |
42.50 |
40 |
|
|
3 |
20 |
40 |
35 |
|
|
4 |
15 |
37.50 |
30 |
|
|
5 |
12 |
37.00 |
35 |
|
|
6 |
10 |
37.50 |
40 |
|
|
7 |
8.57 |
38.57 |
45 |
|
|
8 |
7.50 |
40.63 |
55 |
|
|
9 |
6.67 |
43.33 |
65 |
|
|
10 |
6.00 |
46.50 |
75 |
(i) Write the values of average total cost (from the table above) in your
(ii) At a product price of $56, what will be the profit-maximizing or loss-
minimizing output and total profit?
(iii) If the product price drop to $41, will the firm produce in the short run?
(iv) If the firm is facing a loss of $70 in the short run, what will the firm do? Briefly explain with a diagram.
2. Given that private market for education is produced below the optimum level. What should government do? Explain the difference between market efficiency output and optimum output with a suitable diagram.
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