1. A firm is producing 50 units of its product. At this level of output the AVC=$40,...
Question:
1. A firm is producing 50 units of its product. At this level of output the AVC=$40, and the ATC=$60. The firm is a price taker and the price for its product is $80. Assume the firm is maximizing profits and that labor is the only variable input.
a. Sketch the firm's hypothetical cost curves (assuming a three-stage production function) and highlight important points of intersection.
b. Calculate the profits or losses. Show the result on your graph.
c. What is an economic rent?
d. Calculate the rents, if any. Show the result on your graph.
e. Is the firm producing where ATC are at a minimum?
f. Does the firm experience diminishing marginal products of labor at this level of output?
Managerial Economics Foundations of Business Analysis and Strategy
ISBN: 978-0078021909
12th edition
Authors: Christopher Thomas, S. Charles Maurice