Answer to Question #74514 in Microeconomics for kavi

Question

A purely competitive firm finds that the market price for its product is $25.00. It has a fixed cost of $100.00 and a variable cost of $15.00 per unit for the first 50 units and then $30.00 per unit for all successive units.

Answer 1

P = $25.00. If FC = $100.00 and AVC = $15.00 per unit for the first 50 units and then AVC = $30.00 per unit for all successive units, then the firm should produce no more than 50 units, because P < AVC at AVC = $30 and the firm should shut down.