Answer the question on the basis of the following cost data for a firm that is selling in a purely competitive market: $\begin{array}{c}
\begin{array}{c}
\
Total\
Product\
\hline
1 \
2 \
3 \
4 \
5 \
6 \
7 \
8 \
9 \
10 \
11 \
12
\end{array}
\begin{array}{lll}
Average\
Fixed\
Cost\
\hline
\$ 100.00 \
50.00 \
33.33 \
25.00 \
20.00 \
16.67\
14.29 \
12.50 \
11.11 \
10.00 \
9.09 \
8.33 \
\end{array}
\begin{array}{lll}
Average\
Variable\
Cost\
\hline
\$ 17.00 \
16.00 \
15.00 \
14.25 \
14.00 \
14.00 \
15.71\
17.50 \
19.44 \
21.60 \
24.00 \
26.67
\end{array}
\begin{array}{ccc}
\text { Average }\
\text { Total } &&\text { Marginal }\
\text { Cost }&&\text { Cost }\
\hline
\$ 117.00 & & \$ 17 \
66.00 & & 15 \
48.33 & & 13 \
39.25 & & 12 \
34.00 & & 13 \
30.67 & & 14 \
30.00 & & 26 \
30.00 & & 30 \
30.55 & & 35 \
31.60 & & 41 \
33.09 & & 48 \
35.00 & & 56
\end{array}
\end{array}$ Refer to the data.If the market price for the firm's product is $28,the competitive firm will:
A) produce 4 units at a loss of $17.40.
B) produce 7 units at a loss of $14.00.
C) shut down in the short run.
D) produce 6 units at a loss of $23.80.

Question

Answer the question on the basis of the following cost data for a firm that is selling in a purely competitive market: $\begin{array}{c}
\begin{array}{c}
\
Total\
Product\
\hline
1 \
2 \
3 \
4 \
5 \
6 \
7 \
8 \
9 \
10 \
11 \
12
\end{array}
\begin{array}{lll}
Average\
Fixed\
Cost\
\hline
 \$ 100.00 \
 50.00 \
 33.33 \
 25.00 \
 20.00 \
16.67\
 14.29 \
 12.50 \
 11.11 \
 10.00 \
 9.09 \
 8.33 \
\end{array}
\begin{array}{lll}
Average\
Variable\
Cost\
\hline
 \$ 17.00 \
 16.00 \
 15.00 \
 14.25 \
 14.00 \
 14.00 \
15.71\
 17.50 \
19.44 \
 21.60 \
 24.00 \
 26.67 
\end{array}
\begin{array}{ccc}
\text { Average }\
\text { Total } &&\text { Marginal }\
\text { Cost }&&\text { Cost }\
\hline
 \$ 117.00 & & \$ 17 \
66.00 & & 15 \
48.33 & & 13 \
39.25 & & 12 \
34.00 & & 13 \
30.67 & & 14 \
30.00 & & 26 \
30.00 & & 30 \
30.55 & & 35 \
31.60 & & 41 \
33.09 & & 48 \
35.00 & & 56
\end{array}
\end{array}$ Refer to the data.If the market price for the firm's product is $28,the competitive firm will:
A) produce 4 units at a loss of $17.40.
B) produce 7 units at a loss of $14.00.
C) shut down in the short run.
D) produce 6 units at a loss of $23.80.

Quizplus · Accepted Answer

In a purely competitive market, a firm will continue to produce as long as the price covers the average variable cost (AVC) to minimize losses. At a market price of $28, the firm's AVC is covered up to the production of 7 units (since the AVC at 7 units is $15.71, and the price is higher). The firm will produce 7 units, where the average total cost (ATC) is $30, leading to a loss of $2 per unit ($28 - $30 = -$2) over 7 units, totaling a loss of $14.00.

Answer the Question on the Basis of the Following Cost