1. The following table contains information for a price taking competitive firm.

Question

1. The following table contains information for a price taking competitive firm. Complete the table and determine the profit maximizing level of output (round your answer to the nearest whole number) Total Marginal Fixed Average Tota Average Marginal Output Cost CostCost CostRevenue Revenue Revenue 25 35 30 45 4 185 57 120 240 2. Spacely Sprockets short-run cost curve is: 9 K-25 +15K, where q is the number of Sprockets produced and K is the number of robot hours Spacely hires. Currently, Spacely hires 10 robot hours per period. The short-run marginal cost curve is: MC·K) = 50 If Spacely receives $250 for every sprocket he produces, what is his profit maximizing output level? Calculate Spacely's profits. 25q2

Explanation / Answer

(1)

Working notes:

(a) Total cost (TC) = Average cost (AC) x Output (Q)

AC = TC / Q

(b) Marginal cost (MC) = Change in TC / Change in Q

(c) Total revenue (TR) = Price (P) x Q, where Price is constant for a price taking firm.

P = TR / Q = 240 / 6 = 40 (At output level of 6 units)

(d) Average revenue (AR) = TR / Q = (P x Q) / Q = P

(e) Marginal revenue (MR) = Change in TR / Change in Q

Filled-in table as follows.

For price taking firm, profit is maximized when Price equals MC. From above table, when Price = 40, the closest value of MC that is less than 40 is 25, when Output is 2 units.

Profit-maximizing output = 2 units and Price = 40.

NOTE: As per Chegg answering guideline, 1st question is answered.

Q TC MC FC AC TR AR MR 0 25 25 0 1 35 10 25 35 40 40 40 2 60 25 25 30 80 40 40 3 105 45 25 35 120 40 40 4 185 80 25 46 160 40 40 5 285 100 25 57 200 40 40 6 405 120 25 68 240 40 40

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