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Based on your answers to the WipeOut Skic company in Exercise $7.3,$ now imagine a situation where the firm produces a quantity of 5 units that it sells for a price of $\$ 25$ each.a. What will be the company's profits or losses?b. How can you tell at a glance whether the company is making or losing money at this price by looking at average cost?c. At the given quantity and price, is the marginal unit produced adding to profits?

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How Markets Work

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first thing we have to do is find out whether these this company is making a profit or a loss and how much it that is, so profit or loss. I'm going to use pie as a symbol to represent that is equal to total revenue minus total costs. And total revenue in this situation is equal to, um, the number of goods sold times the price. So that will be the quantity times price minus ah, the total cost and the total cost we get from this table in question 7.3. We see that for five ah, quantity of five are variable, cost is 100 our total cost is, uh the total cost is equal to variable cost plus fixed costs. So at a quantity of five are variable. Cost is $100 our fixed costs because it's fixed is always going to be, um, $30. So now we just need to find out what quantity times price is. Our price were given in the problem is $25 and were given that we're selling it. A quote of ah resigned five units of now this product. So our prophet is going to be five times 1 25 which is 125 minus 100 plus 30 which is 1 30 which is equal to negative $5. So because negative five is less than zero, um, they're making a loss, and now we're asked to find out whether they're making her losing money. So negative five is less than zero, and negative five again represents their profit, which is less than zero. Therefore, they're making a loss. And now we have to figure out whether the marginal unit produced ads to profit So, uh, at a quantity of five at q equals five. Um, the marginal benefit is equal to $25 we get this marginal benefit by looking at the price that the company takes in for each additional good sold. And they make $25 for each additional units sold. Ah, and revenue. And now their cost. The marginal cost is equal to the cost incurred for each additional unit of production and at five goods, this is equal to the cost of five goods minus four goods. So that's 100 minus 70 100 minus 70 which is equal to you 30. So now we have to compare marginal benefit against marginal cost. So marginal benefit and marginal cost 25 is less than 30 so marginal benefit is less than marginal cost. So as of right now, because the marginal benefit is less in marginal cost, it is taking away from profits, taking away from profits.

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