1. The following table describes the market price and the cost structure for a p
ID: 1102861 • Letter: 1
Question
1. The following table describes the market price and the cost structure for a perfectly competitive firm. Use the Information in the following table to calculate the firm’s Total Revenue, Marginal Revenue, Marginal Cost, and Profit.
What is the Profit-Maximizing level of production?
Quantity
Price
Total Revenue
Marginal Revenue
Total Cost
Marginal Cost
Profit
0
$24
---
$16
---
1
24
26
2
24
36
3
24
46
4
24
58
5
24
78
6
24
102
7
24
130
2. Under what conditions will a competitive firm shut down temporarily? Under what conditions will a competitive firm exit the market? Explain.
3. Briefly explain why competitive firms earn zero economic profit in long-run equilibrium.
4. What are the characteristics of a perfectly competitive market? How does a perfectly competitive firm choose their level of production?
Quantity
Price
Total Revenue
Marginal Revenue
Total Cost
Marginal Cost
Profit
0
$24
---
$16
---
1
24
26
2
24
36
3
24
46
4
24
58
5
24
78
6
24
102
7
24
130
Explanation / Answer
Question 1
Following is the complete table -
Total Revenue
(P * Q)
Profit
(TR - TC)
A perfectly competitive firm maximizes production when it produce that level of output at which price equals marginal cost.
The above drawn table shows that given perfectly competitive firm can maximize profit when it produces 6 units of output because corresponding to this level of output is the price equals the marginal cost.
So, the profit-maximizing level of production is 6 units of output.
Quantity PriceTotal Revenue
(P * Q)
Marginal Revenue Total Cost Marginal CostProfit
(TR - TC)
0 24 0 - 16 - -16 1 24 24 24 26 10 -2 2 24 48 24 36 10 12 3 24 72 24 46 10 26 4 24 96 24 58 12 38 5 24 120 24 78 20 42 6 24 144 24 102 24 42 7 24 168 24 130 28 38Related Questions
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