06-23-2010, 03:29 AM
A) Keeping in view the given table, calculate the Producer surplus and profit at each output level.
ECO402 Vuhelp 1.JPG (Size: 31.83 KB / Downloads: 215)
Producer Surplus = Revenue – Variable Cost.
Profit = Producer Surplus – Fixed Cost
B) With reference to given below graph, if a firm is producing at the price which is below $1140, then should the firm stay in business? Give your answer with brief reason.
Solution:
ECO402 Vuhelp 2.JPG (Size: 18.82 KB / Downloads: 310)
SUMMARY:
Profit will be super normal profit when P > ATC (Average Total Cost) > AVC (Average variable cost)
Profit will be Maximum when P = ATC (Average Total Cost) > AVC (Average variable cost)
Profit Maximize: MR = MC
Firm is at loss when P = AVC (Average variable cost).
Solution:
According to above summary if firm’s P is less than AVC (below 1140), then the firm will be at shutdown point when it’s P = AVC. And the firm should quit the business.
ECO402 Vuhelp 1.JPG (Size: 31.83 KB / Downloads: 215)
Producer Surplus = Revenue – Variable Cost.
Profit = Producer Surplus – Fixed Cost
B) With reference to given below graph, if a firm is producing at the price which is below $1140, then should the firm stay in business? Give your answer with brief reason.
Solution:
ECO402 Vuhelp 2.JPG (Size: 18.82 KB / Downloads: 310)
SUMMARY:
Profit will be super normal profit when P > ATC (Average Total Cost) > AVC (Average variable cost)
Profit will be Maximum when P = ATC (Average Total Cost) > AVC (Average variable cost)
Profit Maximize: MR = MC
Firm is at loss when P = AVC (Average variable cost).
Solution:
According to above summary if firm’s P is less than AVC (below 1140), then the firm will be at shutdown point when it’s P = AVC. And the firm should quit the business.