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November 30th, 2010, 07:37 PM   #1
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Economics question about total cost and market price etc...

I got stumped by what should be a simple econ question but I cannot figure it out. It goes like this:

Suppose the total cost for various levels of output for a competitive firm are given in the table below:
(Quantity)(0,1,2,3,4,5,6,7,8,9)**(TotalCost)(10,12 ,15,19,24,30,37,46,55,65)

How many units should the firm produce if the market price is $8? Well i know the answer to that is 6 (i think)

But what price will this firm charge in the long run? Thoughts? Oh and how you got the answer would be nice cause i tried what i thought was correct.
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November 30th, 2010, 08:10 PM   #2
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Re: Economics question about total cost and market price etc

Since profit P equals revenue R less costs C and revenue is price times quantity q sold, we have

q.....C.....R.....P

0.....10....0.....-10
1.....12....8.....-4
2.....15....16.....1
3.....19....24.....5
4.....24....32.....8
5.....30....40....10
6.....37....48....11
7.....46....56....10
8.....55....64.....9
9.....65....72.....7

It does appear that an output of 6 units maximizes profit. As for as the long run, it's been way too long since I took Economics!
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November 30th, 2010, 08:37 PM   #3
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Re: Economics question about total cost and market price etc

yeah thats exactly what i did ... but what about the long run?
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November 30th, 2010, 08:56 PM   #4
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Re: Economics question about total cost and market price etc

Quote:
Originally Posted by dalearyous
yeah thats exactly what i did ... but what about the long run?
About $9, the marginal price.
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November 30th, 2010, 10:02 PM   #5
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Re: Economics question about total cost and market price etc

the hint i got:

Think about where the price ends up in a perfectly competitive market in the long run.

still no idea
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November 30th, 2010, 10:07 PM   #6
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Re: Economics question about total cost and market price etc

Quote:
Originally Posted by dalearyous
Think about where the price ends up in a perfectly competitive market in the long run.
That would be marginal cost, as I mentioned in my last post.
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December 1st, 2010, 06:28 AM   #7
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Re: Economics question about total cost and market price etc

$9 is not the correct answer though
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December 1st, 2010, 08:28 AM   #8
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Re: Economics question about total cost and market price etc

Quote:
Originally Posted by dalearyous
$9 is not the correct answer though
There are different ways of calculating marginal cost (thus my hedge "around"). Find the appropriate one and apply it.
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December 1st, 2010, 09:16 AM   #9
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Re: Economics question about total cost and market price etc

so i calculated the marginal cost for each change in quantity but a bit confused on where to go after that.

q.....C.....R.....P

0.....10....0.....-10
MC 1
1.....12....8.....-4
MC 3
2.....15....16.....1
MC 4
3.....19....24.....5
MC 5
4.....24....32.....8
MC 6
5.....30....40....10
MC 7
6.....37....48....11
MC 9
7.....46....56....10
MC 9
8.....55....64.....9
MC 10
9.....65....72.....7
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December 1st, 2010, 04:03 PM   #10
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Re: Economics question about total cost and market price etc

The marginal cost if the quantity was 2 isn't helpful here because you're selling more than that. You need to find the marginal price for the quantity that's actually being sold (in the lr).
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