In the accompanying table, you are given information about two firms that compete in a price-taker market.
Question:
In the accompanying table, you are given information about two firms that compete in a price-taker market. Assume that fixed costs for each firm are $20.
a. Complete the table.
b. What is the lowest price at which firm A will produce?
c. How many units of output will it produce at that price? (Assume that it cannot produce fractional units.)
d. What is the lowest price at which firm B will produce?
e. How many units of output will it produce?
f. How many units will firm A produce if the market price is $20?
g. How many units will firm B produce at the $20 price? (Assume that it cannot produce fractional units.)
h. If each firm’s total fixed costs are $20 and the price of output is $20, which firm would earn a higher net profit or incur a smaller loss?
i. How much would that net profit or loss be?
*Asterisk denotes questions for which answers are given in Appendix B.
FIRM A | FIRM B | ||||||
QUANTITY | TOTAL VARIABLE COST | MARGINAL COST | AVERAGE VARIABLE COST | QUANTITY | TOTAL VARIABLE COST | MARGINAL COST | AVERAGE VARIABLE COST |
1 | $24 | — | — | 1 | $8 | — | — |
2 | 30 | — | — | 2 | 10 | — | — |
3 | 38 | — | — | 3 | 16 | — | — |
4 | 48 | — | — | 4 | 24 | — | — |
5 | 62 | — | — | 5 | 36 | — | — |
6 | 82 | — | — | 6 | 56 | — | — |
7 | 110 | — | — | 7 | 86 | — | — |
Expert Answer:
