Frances sells earrings in the perfectly competitive earring market. Her output p

Question

Frances sells earrings in the perfectly competitive earring market. Her output per day and costs are seen in the table to the right. If the current equilibrium price in the earring market is SI .70, what price will Frances charge? Find the correct quantities for the missing values in the table, as represented by (i, ii, iii, and iv; enter all values as dollars and cents). Marginal revenue is $. Total revenue is $. Marginal revenue is $. Total revenue is $. What quantity of earrings will maximize Frances' profit? carrings.

Explanation / Answer

(a) (D)

For a perfectly competitive firm, the market price is its own price.

(b)

(i) Marginal revenue (MR) = Change in total revenue (TR) = $(5.1 - 3.4) = $1.7

(ii) Total revenue (TR) = $(5.1 + 1.7) = $6.8

(iii) MR = $(10.2 - 8.5) = $1.7

(iv) TR = $(10.2 + 1.7) = $11.9

(c) Profit is maximized when P = MC = $1.7. Here, the closest MC is $1.35 where Q = 6. So profit-maximizing output is 6.

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