A profit-maximizing firm in a competitive market is...

A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of $\$ 10$, average total cost of $\$ 8,$ and fixed cost of $\$ 200 .$ a. What is its profit? b. What is its marginal cost? c. What is its average variable cost? d. Is the efficient scale of the firm more than, less than, or exactly 100 units?

A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of $\$ 10$, average total cost of $\$ 8,$ and fixed cost of $\$ 200 .$
a. What is its profit?
b. What is its marginal cost?
c. What is its average variable cost?
d. Is the efficient scale of the firm more than, less than, or exactly 100 units?

Key Concepts

Efficient Scale

The efficient scale of a firm is the level of production at which the average total cost is minimized. Operating at this output level ensures that the firm is producing as efficiently as possible, thereby minimizing costs per unit.

Average Variable Cost

Average variable cost represents the variable portion of the cost per unit of output. It is calculated by subtracting the average fixed cost from the average total cost, providing a measure of the cost of production that can vary with output levels.

Marginal Cost

Marginal cost is the additional cost incurred by producing one more unit of output. In a competitive market, a firm maximizes profit by producing up to the point where the marginal cost equals the market price, which reflects marginal revenue.

Profit Maximization

Profit maximization in a competitive market involves producing output where the marginal revenue (which equals the market price) equals the marginal cost. This ensures that producing an additional unit does not decrease profit, and overall profit is calculated as the difference between total revenue and total cost.

Transcript

0:00 For problems.

0:00 Seven.

00:01 We're told profit maximizing firms in a competitive market is currently producing ah 100 units of output.

00:08 It has an average revenue of $10 average social cost off, $8 fixed cost off $200 and we are asked, what is the profits? so we are also told that the number of units produced is 100 all right, and we are asked for the profits.

00:31 So the formula for profit is total.

00:34 Revenue is equal to total cost, is equal to profits, industrial profit formula.

00:40 And we know that 100 units were produced, and we also know that average revenue is $10.

00:47 So he has the $10 over here, and we're also told that every social cost is $8.

00:54 So here's the aids over here, so 100 multiply by 10 minus eight.

00:59 That will give us a profit off $200.

01:02 As you can see on question, be says, what is? it's marginal cost, so we never maximizes profits.

01:13 It will produce at a point where marginal cost is equal to marginal revenue, and in a competitive firm, we know that marginal revenue is equal to average revenue all right.

01:24 And we really know that every driven you is $10.

01:29 So if average revenue is $10 then marginal revenue will be $10.

01:33 And if marginal revenue is $10 then marginal cost will be $10 as well.

01:39 Okay, moving on to questions.

01:41 See, what is the average variable cost...

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