4. McEachern, p. 201, #101 A perfectly competitive firm has the following fixed

Question

4. McEachern, p. 201, #101 A perfectly competitive firm has the following fixed and variable costs in the short run. The market price for the firm's product is $150. FC 100 100 100 100 100 100 100 VC 0 100 180 300 440 600 780 TC TR Profit 2 3 4 a. Complete the table. b. At what output rate does the firm maximize profit or minimize loss? c. What is the firm's marginal revenue at each positive level of output? Its average revenue? What can you say about the relationship between marginal revenue and marginal cost for output rates below the profit-maximizing rate? For output rates above the profit-maximizing rate? d.

Explanation / Answer

A.

B.

At output level of 4 units, the profit is maximized that is $60.

C.

Its MR as well as AR is $150 at each level of output.

D.

Below profit maximizing level of output, MR is greater than MC, whereas above the profit maximizing level of output, the MR is lower than MC.

Q FC VC TC = FC + VC TR = Price * Q Profit = TR-TC 0 100 0 100 0 -100 1 100 100 200 150 -50 2 100 180 280 300 20 3 100 300 400 450 50 4 100 440 540 600 60 5 100 600 700 750 50 6 100 780 880 900 20

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