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Assignment 9 Suppose Andy sells oranges in a perfectly competitive market. The following table represents his output and costs: Output per day Total Cost Fixed

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)

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