Assignment 9

1. Suppose Andy sells oranges in a perfectly competitive market. The following table represents his output and costs:

Output per day	Total Cost	Fixed Cost	Variable Cost	ATC	AFC	AVC	MC
0	$10.00
1	$20.50
2	$24.50
3	$28.00
4	$34.00
5	$43.00
6	$55.50
7	$72.00
8	$93.00
9	$119.00

1. Fill in the missing columns. (6 points)
2. Suppose the equilibrium price for oranges in the market is $12.50. How many oranges should Andy sell if he wants to maximize profits? What price will he charge for a unit of orange? (2 points)
3. Will Andy make a profit or loss? Calculate his profit/loss. (2 points)
4. Show the solution in a graph, clearly labelling Andy's MC, ATC, AVC, and quantity sold by Andy. (5 points)
5. Suppose equilibrium price for oranges in the market falls to $6.00. How many oranges will be sold by Andy? Is he making a profit or a loss at this level of production? (5 points)
6. A firm operating in a perfectly competitive market received $500 in total revenue and has marginal revenue of $10. What is the average revenue and how many units are sold by this firm? (5 points)
7. Imagine a competitive firm operating in a perfectly competitive market. The current market price for its product is $30 per unit. This firm's total cost varies with production. It has fixed costs of $500 and incurs variable costs for each unit it produces. Let's examine its production decisions.
8. If the firm's variable costs for each additional unit of output are $15, what is its marginal cost of production? (2 points)
9. At the current market price of $30 per unit, should the firm produce in the short run? If so, how much should it produce to maximize profits? (2 points)
10. If the market price drops to $25 per unit, how will this change the firm's short-run production decision? Explain. (1 point)