1. **Problem 27:** A perfectly competitive firm produces 3,000 units at a total cost of 36000. Fixed cost is 20000. Price per unit is 10. Should the firm continue to produce in the short run? 2. **Step 1:** Calculate Average Total Cost (ATC), Average Variable Cost (AVC), and compare price to AVC. - Total Cost (TC) = 36000 - Fixed Cost (FC) = 20000 - Variable Cost (VC) = TC - FC = 36000 - 20000 = 16000 - Output (Q) = 3000 3. **Step 2:** Calculate Average Fixed Cost (AFC), Average Variable Cost (AVC), and Average Total Cost (ATC): $$\text{AFC} = \frac{FC}{Q} = \frac{20000}{3000} = 6.67$$ $$\text{AVC} = \frac{VC}{Q} = \frac{16000}{3000} \approx 5.33$$ $$\text{ATC} = \frac{TC}{Q} = \frac{36000}{3000} = 12$$ 4. **Step 3:** Compare price ($10$) to AVC and ATC: - Price $10 > AVC \approx 5.33$ means the firm covers its variable costs and some fixed costs. - Price $10 < ATC = 12$ means the firm is making a loss but minimizing it by producing. 5. **Step 4:** Conclusion: - Since price exceeds AVC, the firm should continue producing in the short run to minimize losses. - The correct answer is **b. Yes, it should continue to produce because it is minimizing its loss.** 6. **Problem 28:** Given the cost data table and market price $15$, determine the profit-maximizing output. 7. **Step 1:** Calculate Marginal Cost (MC) for each output level: - MC(1) = TC(1) - TC(0) = 41 - 36 = 5 - MC(2) = 48 - 41 = 7 - MC(3) = 57 - 48 = 9 - MC(4) = 68 - 57 = 11 - MC(5) = 83 - 68 = 15 - MC(6) = 100 - 83 = 17 8. **Step 2:** The firm produces where price equals marginal cost or price exceeds MC. - Price = 15 - MC at 5 units = 15 (equal) - MC at 6 units = 17 (greater than price) 9. **Step 3:** The firm will produce 5 units because producing 6 units would cost more marginally than the price received. 10. **Answer:** **b. 5 units.**