Task: Consider a firm in a perfectly competitive market. The firm has just built a plant that costs $15,000. Each unit of output requires $5 worth of materials. Each worker costs $3 per hour.
Q1. Based on the information above, fill in the following table.
Number of Output Fixed Cost Variable Cost Total Cost Marginal Cost Average variable Average total
Worker Hours (Q) (FC) (VC) (TC) (MC) cost (AVC) cost (ATC)
0 0
25 100
50 150
75 175
100 195
125 205
150 210
175 212
200 213
Q2. If the market price is $12.50, how many units of output will the firm produce if it wants to maximize its profit or minimize its losses?
Q3. At the price, what is the firm's profit or loss?
Q4. If the firm is losing money, should it shut down or continue producing at a loss? Support your answer with numbers.
Q5. If as a result of a change in the market conditions the price increases to $80, how many units of output will the firm produce if it wants to maximize its profit or minimize its loss? How much is the profit or loss.