Chapter 58, Problem 2CYU

To determine

Lowest market price at which firm attain break-even level.

Answer to Problem 2CYU

The market price should be equal to the average total cost i.e. $10.

Explanation of Solution

Given Information:

Total cost is $500

Total quantity produced is 50

Calculation:

Average total cost can be determined by dividing the total cost with the number of products produced. It is shown below:

  $\begin{array}{c}\text{Average total cost}=\frac{\text{Total cost}}{\text{Quantity}}\\ =\frac{\$500}{50}\\ =\$10\end{array}$

.The firm will earn profit if it sells their products at the price above $10. This is because the product’s average total cost is $10. Suppose, market price is $15 then the firm earns $5 as the profit. In case, if the market price is $8 then in such condition firm will incur losses. The lowest market price should be $10 so that firm can attain its break-even point.

Economics Concept Introduction

Introduction: The price taking firms can reduce the cost of production if they produce the correct amount of products. In other words, profit can be maximized if quantity produced at minimum cost.