Scenario: The fixed cost of producing 500 units of Good Y is $25,000, while the variable cost of producing 500 units of Good Y is $60,000.
-Refer to the scenario above.Which of the following will happen if the equilibrium price charged by a firm producing Good Y in the short run is $130?

Question

Quizplus · Accepted Answer

At an equilibrium price of $130, the firm's total revenue from producing 500 units of Good Y is $65,000 (130 x 500). Since its total cost (fixed cost + variable cost) is $85,000, the firm incurs a loss of $20,000. However, in the short run, the firm will continue production as it is able to cover its variable costs ($60,000) and some of its fixed costs ($5,000). In the long run, if other firms enter the industry, the increased competition may drive down the equilibrium price and further decrease the firm's profits or force them to leave the industry. However, it is not possible to conclude that all firms will incur losses in the long run based on the information provided.

Scenario: the Fixed Cost of Producing 500 Units of Good