The table below shows cost data for a firm that is selling in a purely competitive market. Refer...
Question:
The table below shows cost data for a firm that is selling in a purely competitive market.
| Output | Average Variable Cost | Average Total Cost | Marginal Cost |
|---|---|---|---|
| 10 | $5.00 | $15.00 | $3 |
| 12 | 4.00 | 13.00 | 4 |
| 14 | 4.75 | 11.50 | 6 |
| 16 | 5.75 | 9.00 | 9 |
| 20 | 9.00 | 12.00 | 14 |
Refer to the above cost chart. Which output level will the firm never produce?
a. 12
b. 16
c. 10
d. 20
Perfect Competition:
Perfect competition is type of market structure where there are many buyers and seller who deals with identical products. There is also perfect knowledge about the market and no barriers for entry or exit to and from the market. In this type of market, existence of super normal economic profit attracts new firms while existence of losses make some firms exit the industry.
Answer and Explanation: 1
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View this answerThe firm will never produce at output of 10 units. This is because Marginal cost is less than the Average variable costs. This means that price which...
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