Question and Answer Essay

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Task 1: Consider the following table of costs for the Winsome Widget Factory, which operates in a perfectly competitive market. The market price faced by this firm is $6.00 per widget. a. Fill in the formula for Average Fixed Cost, Average Variable Cost, Average Total Cost, Marginal Cost, Total Revenue, Marginal Revenue, and Total Profit at the top of the column in the gray section within the table. b. Fill in the missing values for Total Fixed Cost, Total Variable Cost, Average Fixed Cost, Average Variable Cost, Average Total Cost, Marginal Cost, Total Revenue, Marginal Revenue, and Total Profit in the blue sections of the table. Winsome Widget Factory | Output | Total Fixed Cost | Total Variable Cost | Total Cost | …show more content…
The lowest point on the average variable cost curve is called the shutdown point. So Winsome Widgets Marginal Revenue is at 60 no matter what output is at, so at output level 50 the MR=MC, and as the marginal decision rule applies at this point. f. Is Winsome Widgets in long-run equilibrium? Explain.
First consider the definition of long-run equilibrium:
All firms are maximizing profits.
No firm has incentive to enter or exit, because all firms are earning zero economic profit.
Price is such that QS = QD. (Output Supply equals Output In other terms that means in an Increasing Cost (time of an) Industry, an increase in input demand (anticipation of when people get greedy for something) by firms in the industry causes an increase in input prices (firms sale price to break even) and thereby an increase in average production costs. Also, at Long Run equilibrium, profits of all firms in the industry are zero and so no firms are entering or exiting the market. Therefore, Winsome Widgets is not at long run equilibrium because the latest (most current) output is 100. Output levels 40 through 59 would be considered in the state of Long Run equilibrium level. Everything before/after that range isn’t eligible for that.

Task 2: Given a numeric production schedule, you will calculate profit and make decisions about short-run profitability to answer questions relating to your calculations. Jerry’s Lock Shop is a perfectly competitive
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