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20 February, 20:16

Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation:

A. should close down in the short run.

B. is maximizing its profits.

C. is realizing a loss of $60.

D. is realizing an economic profit of $40.

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  1. 20 February, 20:40
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    Economic profit will be $40

    So option (d) will be correct option

    Explanation:

    We have given number of units produced = 20 units

    Price of per unit = $10 per unit

    So revenue = 20*$10 = $200

    Revenue : 20 units * $10 = 200

    Fixed cost is given $100

    Variable cost: 20 units * $3 = 60

    So total cost = Fixed cost + Variable cost = 100 + 60 = $160

    So economic profit = Revenue - Total cost = 200 - 160 = $40

    So option (d) will be correct answer
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