Occam's Razors is a typical firm in a perfectly competitive market. Its total revenue from selling 1000 razors is $\$ 2500$ and its variable costs are $\$ 2000$.

If the market for razors is in long-run equilibrium, which of the following can be inferred based on the above information?

Choose 1 answer:
(A) Average total cost will decrease if the firm decreases output
(B) The marginal cost of a razor is $\$ 2.50$ and the average fixed cost is $\$ 0.50$
(C) The price of a razor is $\$ 3$ and the marginal cost of a razor is $\$ 3$.
(D) The fixed costs of production are $\$ 500$ and marginal revenue is $\$ 2$
(E) Average total cost will decrease if the firm increases output

Question

Occam's Razors is a typical firm in a perfectly competitive market. Its total revenue from selling 1000 razors is $\$ 2500$ and its variable costs are $\$ 2000$.

If the market for razors is in long-run equilibrium, which of the following can be inferred based on the above information?

Choose 1 answer:
(A) Average total cost will decrease if the firm decreases output
(B) The marginal cost of a razor is $\$ 2.50$ and the average fixed cost is $\$ 0.50$
(C) The price of a razor is $\$ 3$ and the marginal cost of a razor is $\$ 3$.
(D) The fixed costs of production are $\$ 500$ and marginal revenue is $\$ 2$
(E) Average total cost will decrease if the firm increases output

Accepted Answer

∻Solution∻ ‖ a ⋮ Long-run Equilibrium in Perfect Competition: In long-run equilibrium, a firm in a perfectly competitive market will make zero economic profit. This implies that total revenue (TR) equals total cost (TC), and price (P) equals average total cost (ATC). ‖ ‖ b ⋮ Given Data Analysis: Occam's Razors has a total revenue (TR) of $2500 for selling 1000 razors, so the price per razor is $2.50. Variable costs (VC) are $2000, so average variable cost (AVC) is $2.00 per razor. ‖ ‖ c ⋮ Inferring Fixed Costs and Marginal Cost: Since TR = TC in long-run equilibrium, and we know TR and VC, we can calculate fixed costs (FC) as TC - VC. Marginal cost (MC) in perfect competition is equal to the price in long-run equilibrium. ‖ ‖ d ⋮ Calculation of Fixed Costs and Marginal Cost: FC = TR - VC = $2500 - $2000 = $500. Since P = MC in long-run equilibrium, MC = $2.50. ‖ ‖ e ⋮ Answer Choice Analysis: Based on the calculations, we can determine that the correct answer must reflect that the price equals the marginal cost, which is $2.50, and the fixed costs are $500. ‖ ∻Answer∻ ⚹ (B) The marginal cost of a razor is $2.50 and the average fixed cost is $0.50 ⚹ ∻Key Concept∻ ⚹ Long-run Equilibrium in Perfect Competition ⚹ ∻Explanation∻ ⚹ In long-run equilibrium, a perfectly competitive firm's price equals its marginal cost and average total cost, leading to zero economic profit. The given data allows us to infer the correct answer based on these principles.◊What is the relationship between a firm's total revenue, variable costs, and long-run equilibrium in a perfectly competitive market?⍭ Generate me a similar question◊⚹

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