Вопрос: At What Minimum Price Will The Firm Produce A Positive Output?

Why would a firm that incurs losses choose to produce?

Why would a firm that incurs losses choose to produce rather than shut down.

Losses occur when revenues do not cover total costs.

If revenues are greater than variable costs, but not total costs, the firm is better off producing in the short run rather than shutting down, even though it is incurring a loss..

Why in the short run a firm may continue to produce even at a loss provided the price is more than the average variable cost?

If the price falls below average variable cost, then the firm is better off shutting production in the short run. By producing any output, it does not generate enough revenue to cover variable cost let alone any fixed cost. The loss incurred is greater than fixed cost.

How do all firms determine what output to produce?

At any given quantity, total revenue minus total cost will equal profit. One way to determine the most profitable quantity to produce is to see at what quantity total revenue exceeds total cost by the largest amount. … At output levels from 50 to 80, total revenues exceed total costs, so the firm is earning profits.

Why is profit Maximised at MC MR?

Maximum profit is the level of output where MC equals MR. As long as the revenue of producing another unit of output (MR) is greater than the cost of producing that unit of output (MC), the firm will increase its profit by using more variable input to produce more output.

What is the relationship between AC and MC?

AC refers to TC per unit of output and MC refers to addition to TC when one more unit of output is produced. ADVERTISEMENTS: ii. Both AC and MC curves are U-shaped due to the Law of Variable Proportions.

How do you calculate fixed costs?

Fixed Cost = Total Cost of Production – Variable Cost Per Unit * No. of Units ProducedFixed Cost = $100,000 – $3.75 * 20,000.Fixed Cost = $25,000.

What level of output will the firm produce?

In order to maximize profit, the firm should produce where its marginal revenue and marginal cost are equal. The firm’s marginal cost of production is $20 for each unit. When the firm produces 4 units, its marginal revenue is $20. Thus, the firm should produce 4 units of output.

What is the cost of producing an additional unit of output?

Marginal costs Marginal cost is the cost of producing one extra unit of output. It can be found by calculating the change in total cost when output is increased by one unit. It is important to note that marginal cost is derived solely from variable costs, and not fixed costs.

Why is supply curve marginal cost?

The marginal cost curve is a supply curve only because a perfectly competitive firm equates price with marginal cost. This happens only because price is equal to marginal revenue for a perfectly competitive firm.

What is the shutdown rule?

Conventionally stated, the shutdown rule is: “in the short run a firm should continue to operate if price equals or exceeds average variable costs.” Restated, the rule is that to produce in the short run a firm must earn sufficient revenue to cover its variable costs.

Do perfectly competitive markets exist?

Though there is no actual perfectly competitive market in the real world, a number of approximations exist: An example is that of a large action of identical goods with all potential buyers and sellers present.

Should a firm always produce at the quantity where average total costs are minimized?

The long-run average cost curve is formed by determining the minimum cost at every level of output. In the short run, however, the firm might not be producing the optimal long-run output. Thus, if there are any fixed factors of production, the firm does not always produce where long-run average cost is minimized. 10.

How do you find the profit maximizing level of output?

Total profit is maximized where marginal revenue equals marginal cost. In this example, maximum profit occurs at 4 units of output. A perfectly competitive firm will also find its profit-maximizing level of output where MR = MC.

What output would the perfectly competitive firm produce to maximize profit?

The profit-maximizing choice for a perfectly competitive firm will occur at the level of output where marginal revenue is equal to marginal cost—that is, where MR = MC. This occurs at Q = 80 in the figure.

Can you tell whether this firm is in a competitive industry?

The curves cross at a quantity between 5 and 6 units, yielding the same answer as in part a). d) Can you tell whether this firm is in a competitive industry? … This industry is competitive since marginal revenue is the same for each quantity. The industry is not in long-run equilibrium, since profit is positive.

What is a shutdown point?

A shutdown point is a level of operations at which a company experiences no benefit for continuing operations and therefore decides to shut down temporarily—or in some cases permanently. It results from the combination of output and price where the company earns just enough revenue to cover its total variable costs.

Why would a firm choose to remain in an industry in which it makes an economic profit of zero?

Why Do Competitive Firms Stay in Business If They Make Zero Profit? Profit equals total revenue minus total cost. Total cost includes all the opportunity costs of the firm. In the zero-profit equilibrium, the firm’s revenue compensates the owners for the time and money they expend to keep the business going.

How do you determine the number of firms in a perfectly competitive market?

Perfectly competitive firms will set P=MC, so 20=4+4q, so q=4. If each perfectly competitive firm is producing 4, market output is 20, there will be 5 perfectly competitive firms in the industry.