Perfect Competition Costs

The following hypothetical data is for a period of one month for a farm in Canada that produces one commodity in an industry that is theoretically close to perfect competition.

Fixed Overhead Costs

Machinery Costs $1,500

Administrative Salaries 2,500

Utilities and Other Overhead Costs 2,000

Production Costs

Following are direct production costs including labour and materials used in making the products for a range of production from 600 units to 1600 units.

Quantity	Production Costs
600 units	$3800
700	4400
800	4900
900	5300
1000	5800
1100	6500
1200	7400
1300	8500
1400	9800
1500	11300
1600	13100

1. Use the data to calculate the following for each quantity and present an Excel chart with the results.

1. Fixed Cost, Variable Cost and Total Cost

1. Marginal Cost per unit (Divide MC by 100 to get MC per unit - data is presented in increments of 100 units)

1. Average Fixed Cost, Average Variable Cost, Average Total Cost

2. Using your Excel chart, graph the following: Marginal Cost, Average Variable Cost, Average Total Cost

3. If the market price is $13.00 per unit, identify the level of production where the net profit will be maximized. Calculate the amount of profit at this point and the profit per unit.

4. Identify the price and quantity at which the firm will break-even. Explain.

5. If the market price falls to $9.00 will the firm continue to produce? Explain with reference to average costs.

6. Identify the price at which the firm will want to shut down production.Explain.