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7 October, 20:27

Assume that a profit-maximizing firm is perfectly competitive in both the output and the factor markets and is at its long-run equilibrium. The firm's output is 100 units, its total revenue is $600.00, and the fixed cost of production is $50.00. Based on this information, which of the following is true for the firm?

a. Its marginal cost is $5.50, and its average total cost is $5.50.

b. Its marginal cost is $5.50, and its average variable cost is $5.50.

c. Its marginal cost is $6.00, and its average total cost is $5.50.

d. Its marginal cost is $6.00, and its average fixed cost is $5.50.

e. Its marginal cost is $6.00, and its average variable cost is $5.50.

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Answers (2)
  1. 7 October, 20:39
    0
    e. Its marginal cost is $6.00, and its average variable cost is $5.50

    Explanation:

    To calculate the variable costs;

    We use this method

    Variable costs = change in total revenue - fixed costs

    And the average variable cost as = variable cost/output

    We are given the values as;

    Total revenue = $600

    Fixed cost = $50

    Output = 100 units

    Calculations

    Now marginal revenue will be;

    Marginal revenue = change in total revenue/change in output

    Marginal revenue = 600/100

    Marginal revenue = $6.00

    Marginal revenue = marginal costs

    Therefore, Marginal cost = $6.00

    Now variable cost will be

    Variable cost = 600 - 50

    Variable cost = $550

    Average variable cost = $550/100

    = $5.50
  2. 7 October, 23:13
    0
    E. Its marginal cost is $6.00, and its average variable cost is $5.50.

    Explanation:

    Given that

    Output = 100 unit

    Total revenue = $600

    Fixed cost = $50

    Marginal revenue = change in total revenue/change in output

    = 600/100

    = $6.00

    But in a perfectly competitive firm, the profit maximizing choice occurs where Marginal revenue = marginal cost.

    Hence, Marginal cost = $6.00

    Since fixed cost = 50,

    Variable cost = 600 - 50

    = 550

    Average variable cost = variable cost/output

    = 550/100

    = $5.50
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