Given the following cost data for a firm that is selling in a perfectly competit
ID: 1189759 • Letter: G
Question
Given the following cost data for a firm that is selling in a perfectly competitive market. Assume that the firm selects the Output that maximizes its profits or minimizes its losses.
Output AFC AVC ATC MC
1 $100.00 $17.00 $117.00 $17.00
2 50.00 16.00 66.00 15.00
3 33.33 15.00 48.33 13.00
4 25.00 14.25 39.25 12.00
5 20.00 14.00 34.00 13.00
6 16.67 14.00 30.67 14.00
7 14.29 15.71 30.00 26.00
8 12.50 17.50 30.00 30.00
9 11.11 19.44 30.55 35.00
10 10.00 21.60 31.60 41.00
If the market price for the firm’s product is $30, What is its profit if it operates?
If the market price for the firm’s product is $14, should the firm operate or shut down?
What is the firm’s supply curve given the cost and price data above?
Explanation / Answer
Profit is maximized when MR=MC
If the firm prices its product at $30 then MR=30
At MC =30 the profit is maximized
At output=8 unit, MC=MR=30
Profit at Output=8, Total Profit = Revenue- TC=Output*Price-Output*ATC=8*30-8*30=0
For Different level of output, profit is calculated below
Output
AFC
AVC
ATC
MC
Profit=Q*(30-ATC)
1
100.00
17.00
117
17
-87.0
2
50.00
16.00
66.00
15
-72.0
3
33.33
15.00
48.33
13
-55.0
4
25.00
14.25
39.25
12
-37.0
5
20.00
14.00
34.00
13
-20.0
6
16.67
14.00
30.67
14
-4.0
7
14.29
15.71
30.00
26
0.0
8
12.50
17.50
30.00
30
0.0
9
11.11
19.44
30.55
35
-5.0
10
10.00
21.60
31.60
41
-16.0
At price=14, Marginal Revenue at each level of output<AVC
Thus the firm should shut down
Output
AFC
AVC
ATC
MC
Profit=Q*(30-ATC)
1
100.00
17.00
117
17
-87.0
2
50.00
16.00
66.00
15
-72.0
3
33.33
15.00
48.33
13
-55.0
4
25.00
14.25
39.25
12
-37.0
5
20.00
14.00
34.00
13
-20.0
6
16.67
14.00
30.67
14
-4.0
7
14.29
15.71
30.00
26
0.0
8
12.50
17.50
30.00
30
0.0
9
11.11
19.44
30.55
35
-5.0
10
10.00
21.60
31.60
41
-16.0
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.