Suppose that in order to produce any positive amount of output, a firm must build an operating...
Question:
Suppose that in order to produce any positive amount of output, a firm must build an operating facility which costs $40. The Variable Cost of production is equal to 6q, where q is the quantity of output. Therefore the Marginal Cost of production is constant at MC = $6. If the firm decides not to produce, it does not build the operating facility, and so it incurs 0 costs. The demand facing the firm is given by P = 20 - 2q.
a) What is the Average Total Cost of producing 5 units of output?
b) What amount of output should the firm produce in order to maximize its profit?
c) What is the socially optimal level of output?
d) What is the total social welfare of the socially optimal level of output?
Social Optimal Level of Output
The social optimal level of output is the output for which social welfare maximizes. This is the point of an optimal level of resource allocation. The social optimal level of output is attained when the price of commodities is equal to the marginal cost of commodities, at that output level social welfare will be maximized.
Answer and Explanation: 1
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View this answerGiven:
Demand function: P = 20 - 2q
Fixed cost (F) equals to 40.
Variable cost (V) equals to 6q.
Marginal cost (MC) is equal to 6.
a. Total cost...
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