The table below illustrates the output choices the typical computer producer fac

Question

The table below illustrates the output choices the typical computer producer faced in 1978.

*Note that output levels are calibrated in hundreds in this example; that's why we have divided the change in total costs and revenues from one output level to another by 100 to calculate marginal revenue and marginal cost. Very few manufacturers deal in units of 1.

Instructions: Enter your responses as a whole number.

(a) What was the prevailing computer price in 1978?

$

(b) How much total profit did the typical firm earn?

$

(c) At what price would profits have been zero?

$

(d) At what price would the firm have shut down?

Below $

Output per Month Price Total Revenue Total Cost Total Profit Marginal
Revenue* Marginal Cost* Average Total Cost Profit per Unit (Price Minus Average Cost) 0 $ 1,000 $        0 $ 60,000 -$60,000 - - - - 100 1,000 100,000   90,000   10,000 $ 1,000    $   300    $900 $100 200 1,000 200,000 130,000   70,000 1,000   400 650 350 300 1,000 300,000 180,000 120,000 1,000   500 600 400 400 1,000 400,000 240,000 160,000 1,000   600 600 400 500 1,000 500,000 320,000 180,000 1,000   800 640 360 600 1,000 600,000 420,000 180,000 1,000 1,000 700 300 700 1,000 700,000 546,000 154,000 1,000 1,260 780 220 800 1,000 800,000 720,000   80,000 1,000 1,740 900 100 900 1,000 900,000 919,800 -19,800 1,000 1,998 1,022 -22

*Note that output levels are calibrated in hundreds in this example; that's why we have divided the change in total costs and revenues from one output level to another by 100 to calculate marginal revenue and marginal cost. Very few manufacturers deal in units of 1.

Explanation / Answer

a) $1000. MR=MC when the price is $1000.

b) Total profit is $180,000. $300 x 600 computers.

c) $600. Because ATC reaches a minimum of $600 then rises. Zero profit occurs when ATC=P.

d) Shut down point occurs when price is below AVC. Here, we do not know how much are the variable costs. Only average total costs are given.

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