Acme is a perfectly competitive firm. It has the cost schedules given in the above table and has a fixed cost of $12.00. The price of Acme's product is $14.20
What is Acme's most profitable amount of output? What is Acme's total economic profit or loss?
The profit maximizing level of output is either 7 or 8 units. Acme's total economic profit is the economic profit per unit times the number of units produced. The economic profit per unit equals the price minus the average total cost. To calculate average total cost, note that when Acme produces 8 units, the average variable cost per unit is $6.50 and the average fixed cost is $1.50, so Acme's aver-age total cost equals $8.00. Thus Acme makes an economic profit of $14.20 - $8.00 = $6.20 per unit. Hence Acme's total economic profit is ($6.20 ) × (8 units) = $49.60. Acme's total economic profit when it makes 7 units is (except for rounding) identical.
You might also like to view...
Downward wage rigidity arises when:
A) workers expect wages to increase due to economic expansion. B) workers and firms resist to wage cuts. C) firms resist increasing wages. D) quantity of labor demanded exceeds the quantity of labor supplied.
The data in the table above give two points on the demand curve for pizza. Using the midpoint method, when the price of a pizza falls from $10 to $9, what is the price elasticity of demand?
A) 0.5 B) 0.6 C) 0.9 D) 2.1 E) 8.6
The federal budget deficits of the 1980s
A. are about the same as those of earlier decades. B. caused the government debt to increase in absolute terms but not as a percent of GDP. C. were due to the persistent recession that occurred throughout the 1980s. D. were caused by rising expenditures and tax cuts.
Capital, labor, and natural resources combine to produce goods and services. Which of the following will not lead to an increase in the ability of an economy to produce goods and services?
A) increased training for workers B) establishing a more productive technology C) new government restrictions on which technologies may be used to produce goods and services D) discovery of new oil reserves