Q VC MC AVC 1 $10 $10 $10 2 $16 $6 $8 3 $20 $4 $6.66 4 $25 $5 $6.25 5 $31 $6 $6.
ID: 1177517 • Letter: Q
Question
Q
VC
MC
AVC
1
$10
$10
$10
2
$16
$6
$8
3
$20
$4
$6.66
4
$25
$5
$6.25
5
$31
$6
$6.2
6
$38
$7
$6.33
7
$46
$8
$6.57
8
$55
$9
$6.88
9
$65
$10
$7.22
a. Calculate the marginal cost and average variable cost for each level of production. - Done
b. How much would the firm produce if it could sell its product for $5? For $7? For $10?
c. Explain your answers.
d. Assuming that its fixed cost is $3, calculate the firm%u2019s profit at each of the production levels determined in part (b).
Q
VC
MC
AVC
1
$10
$10
$10
2
$16
$6
$8
3
$20
$4
$6.66
4
$25
$5
$6.25
5
$31
$6
$6.2
6
$38
$7
$6.33
7
$46
$8
$6.57
8
$55
$9
$6.88
9
$65
$10
$7.22
Explanation / Answer
You have already given some figures for Average variable cost and these are verified correct. In any case ,see the answers below:
a. the marginal cost and average variable cost for each level of production are as follows:
Q VC MVC AVC
1 10 10 10
2 16 6 8
3 20 4 6.67
4 25 5 6.25
5 31 6 6.2
6 38 7 6.34
7 46 8 6.57
8 55 9 6.875
9 65 10 7.22
b.the firm produce if it could sell its product for $5: Q=4
For price= $7 , Q= 6 and For price= $10, Q = 9
c. Explain your answers: Average variable cost at each level of Q is caculated by VC/Q.
Marginal cost is calculated at each level by taking the difference between VC at each level of Q and at the immediate preeding level of Q
Prift maximizing output are where price= marginal cost. So, we take each price and go that level of output where the VC exactly matches the price.
d. Assuming that its fixed cost is $3, the firms profit at each of the production levels determined in part (b) would be as follows:
--At price $5, Q= 4 where VC= 25, and revenue is $20 (=5*4)so profit = $(20-25-3) = -$8, ie. the loss is eight dollars. Since here the MC is decling, MC=Price does not give maximum profit. But, the firm minimizes its losses, the same thing would have happened at Q=3..
--At price $7, Q= 6 where VC= 25, and revenue is $42 (=7*6)so profit = $(42-38-3) = $1,
--At price $10, Q= 9 where VC= 65, and revenue is $90(=10*9), so profit = $(90-65-3) = $22,
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