Answer the question on the basis of the following cost data for a purely competitive seller: $$\begin{array} { c c c }
\text { Output } & & \text { Total Cost } \
\hline
0 & & \$ 50 \
1 & & 90 \
2 & & 120 \
3 & & 140 \
4 & & 170 \
5 & & 210 \
6 & & 260 \
7 & & 330
\end{array}$$ Refer to the data.If product price is $25,the firm will:
A) shut down and incur a $90 loss.
B) shut down and incur a $50 loss.
C) produce 3 units and incur a $65 loss.
D) produce 4 units and realize a $10 economic profit.

Question

Answer the question on the basis of the following cost data for a purely competitive seller: $$\begin{array} { c c c } 
\text { Output } & & \text { Total Cost } \
\hline
0 & & \$ 50 \
1 & & 90 \
2 & & 120 \
3 & & 140 \
4 & & 170 \
5 & & 210 \
6 & & 260 \
7 & & 330
\end{array}$$ Refer to the data.If product price is $25,the firm will:
A) shut down and incur a $90 loss.
B) shut down and incur a $50 loss.
C) produce 3 units and incur a $65 loss.
D) produce 4 units and realize a $10 economic profit.

Quizplus · Accepted Answer

To determine the firm's best course of action, we calculate the marginal cost (MC) for each additional unit produced and compare it to the given product price of $25. The firm should produce as long as the price covers the marginal cost, but not beyond the point where MC exceeds the price. The firm's fixed cost, which is the total cost at zero output, is $50. This is the loss the firm would incur if it shuts down, as fixed costs are incurred regardless of production level. Producing any units at a price of $25 would result in a loss greater than $50, as the revenue generated would not cover the variable costs plus the fixed costs. Therefore, the firm minimizes its loss by not producing and incurring a $50 loss.

Answer the Question on the Basis of the Following Cost