The table below shows the weekly marginal cost (MC) and average total cost (ATC) for Smitten, a perfectly competitive firm that produces children’s mittens in a competitive market. Smitten's Production CostsQuantity (pairs of mittens) Marginal Cost (dollars) Average Total Cost (dollars)5 $1.50 $8.0010 2.00 5.0015 2.50 4.5020 3.50 4.0025 4.00 4.0030 5.00 4.5035 6.00 5.0040 8.50 5.50 Smitten’s marginal cost and average total cost curves are shown below. Instructions: In part a, enter your answer as a whole number. In parts b, c, d, and e, round your answers to two decimal places. a. If the market price of children’s mittens is $6.00 per pair, how many pairs of children’s mittens should Smitten produce per week to maximize its profits? 10 Numeric ResponseEdit Unavailable. 10 incorrect.pairs of mittens b. When the market price is $6.00, what is Smitten’s average total cost at the profit-maximizing quantity of children’s mittens? $ 60 Numeric ResponseEdit Unavailable. 60 incorrect. c. What are Smitten’s weekly profits if the market price is $6.00 per pair and the firm produces the profit-maximizing quantity of mittens? $ 55 Numeric ResponseEdit Unavailable. 55 incorrect. d. What are Smitten’s weekly profits if the market price is $5.00 per pair and the firm produces the profit-maximizing quantity of mittens? $ 45 Numeric ResponseEdit Unavailable. 45 incorrect. e. At what price would Smitten earn a normal profit? $ 4 Numeric ResponseEdit Unavailable. 4 correct.
Question
The table below shows the weekly marginal cost (MC) and average total cost (ATC) for Smitten, a perfectly competitive firm that produces children’s mittens in a competitive market. Smitten's Production CostsQuantity (pairs of mittens) Marginal Cost (dollars) Average Total Cost (dollars)5 8.0010 2.00 5.0015 2.50 4.5020 3.50 4.0025 4.00 4.0030 5.00 4.5035 6.00 5.0040 8.50 5.50 Smitten’s marginal cost and average total cost curves are shown below. Instructions: In part a, enter your answer as a whole number. In parts b, c, d, and e, round your answers to two decimal places. a. If the market price of children’s mittens is 6.00, what is Smitten’s average total cost at the profit-maximizing quantity of children’s mittens? 6.00 per pair and the firm produces the profit-maximizing quantity of mittens? 5.00 per pair and the firm produces the profit-maximizing quantity of mittens? 4 Numeric ResponseEdit Unavailable. 4 correct.
Solution
a. To maximize its profits, Smitten should produce the quantity where the market price equals the marginal cost. Looking at the table, the marginal cost is equal to the market price of $6.00 at a quantity of 35 pairs of mittens. So, Smitten should produce 35 pairs of mittens per week.
b. The average total cost at the profit-maximizing quantity of 35 pairs of mittens is $5.00.
c. Smitten’s weekly profits can be calculated by subtracting the total cost from the total revenue. The total revenue is the market price times the quantity, which is 210.00. The total cost is the average total cost times the quantity, which is 175.00. So, Smitten’s weekly profits are 175.00 = $35.00.
d. If the market price is 5.00 * 30 = 4.50 * 30 = 150.00 - 15.00.
e. Smitten would earn a normal profit at a price where the average total cost equals the market price. Looking at the table, the average total cost is 4.00 per pair.
Similar Questions
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