Temple University
Economics 52
The Competitive Firm
Name
Suppose that a perfectly competitive firm has the short run total cost function shown below.
Output
Total Cost (Dollars)
Marginal Cost
0
10
-
1
12
2
16
3
22
4
30
5
40
1. Complete the above table by filling in the MC, ATC and AVC columns.
2. What is the fixed cost for the representative firm?
3. Using the data in the table, at what output does Average Total Cost reach its minimum?
4. Using the data in the table, at what output does Average Variable Cost reach its minimum?
There are 1,000 firms in the industry identical to the one shown in the above table.
5. Suppose that the price in the market place is $6 per unit. What output will be produced by the firm represented by the data in the above table?
6. At the price and output of question 5 is the firm earning a profit? Yes No
7. Suppose that the price in the market place is $6 per unit. What will be the aggregate output for the entire industry?
The market demand curve for their homogeneous product is as follows:
Price (Dollars)
Quantity Demanded
3000
2000
6
1500
8
1000
8. What is the equilibrium price in the market?
9. What will be the output of each firm ?
10. In the short run will firms shut down Yes or No?
11. Will there be exit in the long run Yes or No?
12. What will be the number of firms in this industry in the long run (you can assume that short run cost structures do not change as firms enter and exit)?