The following are the cost information of a typical ice tea company in an industry with 100 firms. Output (ice tea per hour) Marginal Cost ($ per ice tea) Average Variable Cost ($ per ice tea) Average Total Cost ($ per ice tea) 3 2.50 4.00 7.33 4 2.20 3.53 6.03 5 1.90 3.24 5.24 6 2.00 3.00 4.67 7 2.91 2.91 4.34 8 4.25 3.00 4.25 9 8.00 3.33 4.44 a) At the price of $2.20 per ice tea, what is the firm’s profit maximizing level of output? Why is this the profit maximizing level of output for the firm? b) If the market price is $8 per ice tea and the firm is producing six (6) ice tea per hour, is the firm maximizing profit or not? Why or why not? If the firm is not maximizing profit, what should it do to maximize profit? c) At the price of $8 per ice tea, what is the firm’s profit-maximizing level of output? Why is this the profit maximizing level of output? What is the firm’s economic profit at this output and price (show formula and solution)?
The following are the cost information of a typical ice tea company in an industry with 100 firms.
|
|
|||
|
Output (ice tea per hour) |
Marginal Cost ($ per ice tea) |
|
|
|
3 |
2.50 |
4.00 |
7.33 |
|
4 |
2.20 |
3.53 |
6.03 |
|
5 |
1.90 |
3.24 |
5.24 |
|
6 |
2.00 |
3.00 |
4.67 |
|
7 |
2.91 |
2.91 |
4.34 |
|
8 |
4.25 |
3.00 |
4.25 |
|
9 |
8.00 |
3.33 |
4.44 |
a) At the
b) If the market price is $8 per ice tea and the firm is producing six (6) ice tea per hour, is the firm maximizing profit or not? Why or why not? If the firm is not maximizing profit, what should it do to maximize profit?
c) At the price of $8 per ice tea, what is the firm’s profit-maximizing level of output? Why is this the profit maximizing level of output? What is the firm’s economic profit at this output and price (show formula and solution)?
Step by step
Solved in 4 steps
