教会我---**Introductory Text:**
Lufracket faces the following costs to operate:
a. A Fixed cost of £20 to enter the industry.
b. A variable cost of £1 for the first tennis racket, £1.10 for the second unit, £1.20 for the third unit etc (rising as a straight line).
The diagram below shows marginal and average costs related to the number of rackets.
**Chart Description:**
* **Type:** Line chart showing cost curves.
* **Coordinate Axes:**
* X-axis: Labeled from 0 to 60 in increments of 10. Represents the Number of rackets (Quantity).
* Y-axis: Labeled from 0 to 5 in increments of 0.5. Represents Cost/Price (Units not explicitly labeled but implied monetary).
* **Lines/Curves:** Three distinct lines representing cost curves.
* Blue line: Labeled "MC". Starts at 1 on the Y-axis when X is 0, and rises steeply as X increases, passing through approximately (20, 3) and (30, 4) and reaching 5 at X=40.
* Red line: Labeled "AVC". Starts at 1 on the Y-axis when X is 0, and rises steadily as X increases, passing through approximately (30, 2.5) and (50, 3.5). It appears to be a straight line.
* Green line: Labeled "AC". Starts very high and decreases sharply, reaching a minimum value of approximately 3 at X=20. It then rises gradually as X increases, passing through approximately (30, 3.2) and (50, 3.8). The MC curve intersects the AC curve at the AC curve's minimum point (approximately X=20, Y=3). The MC curve intersects the AVC curve at the AVC curve's minimum point (implicitly at X=0, Y=1 as it's a straight line variable cost).
* **Legend:** Located on the right side of the chart.
* Blue line: MC
* Red line: AVC
* Green line: AC
**Questions:**
1. Tennis rackets initially sell for £3.50 each. Roughly how many rackets will the firm choose to produce? How much profit will the firm make before and after fixed costs are taken account of?
2. The price of a tennis racket is reduced to £2.50. Will the firm continue to produce in the short run? How much profit will the firm make before and after fixed costs are taken account of?
3. Will the firm continue to operate in the longer run?
4. Assuming all firms in the perfectly competitive tennis racket industry face identical cost curves, what will be the long-run market clearing price for a tennis racket. How many rackets will each surviving firm produce?
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欢迎学习企业成本分析。今天我们分析Lufracket网球拍公司的成本结构和生产决策。该公司面临固定成本20英镑和递增的可变成本。图表显示了边际成本MC、平均可变成本AVC和平均总成本AC曲线。这些成本曲线将帮助我们分析不同价格水平下的最优生产决策。
Now analyzing the first question: production decision when tennis rackets sell for £3.50 each. According to profit maximization principle, the firm should produce where price equals marginal cost. Setting 3.50 equal to 1 plus 0.1Q, we get optimal quantity of 25 tennis rackets. Total revenue is £87.50, variable cost is £56.25, profit before fixed costs is £31.25, and net profit after fixed costs is £11.25. The yellow area in the graph represents the economic profit earned by the firm.
Analyzing question 2: when price drops to £2.50, the firm sets price equal to marginal cost, producing 15 tennis rackets. The key decision is whether to continue production in the short run. Since price £2.50 exceeds average variable cost £1.75 at this quantity, the firm should continue operating to minimize losses. Total revenue is £37.50, variable cost is £26.25, giving £11.25 contribution to fixed costs. After accounting for £20 fixed costs, the firm has a net loss of £8.75, but this is better than shutting down and losing the full £20 fixed cost.
Now analyzing questions 3 and 4 about long-run decisions. For question 3, at price £2.50, the firm loses £8.75 because price is below average cost. In the long run, loss-making firms exit the market, so this firm will not continue operating at this price. For question 4, in perfect competition, long-run equilibrium occurs where price equals both marginal cost and average cost, ensuring zero economic profit. This happens at the minimum point of the average cost curve. Setting MC equal to AC and solving, we find the equilibrium quantity is 20 rackets per firm at a price of £3.00. This represents the long-run market clearing price where surviving firms earn normal profits.
Let's summarize our complete analysis of Lufracket's production decisions. At £3.50 per racket, the firm maximizes profit by producing 25 units, earning £11.25 after fixed costs. When price drops to £2.50, the firm produces 15 rackets in the short run since price exceeds average variable cost, but suffers a loss of £8.75. In the long run at this price, the firm would exit since it cannot cover total costs. The long-run competitive equilibrium occurs at £3.00 per racket with each firm producing 20 units, where price equals minimum average cost and firms earn zero economic profit. This analysis demonstrates key microeconomic principles of profit maximization, shutdown decisions, and long-run equilibrium in perfect competition.