Question
Consider total cost and total revenue given in the table below: QUANTITY 0 1 2 3 4 5 6 7 Total cost $8 $9 $10 $11 $13 $19 $27 $37 Total revenue 0 8 16 24 32 40 48 56 a
. Consider total cost and total revenue given in the table below:
QUANTITY 0 1 2 3 4 5 6 7
Total cost $8 $9 $10 $11 $13 $19 $27 $37
Total revenue 0 8 16 24 32 40 48 56
a. Calculate profit for each quantity. How much should the firm produce to maximize profit?
b. Calculate marginal revenue and marginal cost for each quantity. Graph them. (Hint: Put the points between whole numbers. For example, the marginal cost between 2 and 3 should be graphed at 2 1/2.)
At what quantity do these curves cross? How does this relate to your answer to part (a)?
c. Can you tell whether this firm is in a competitive industry? If so, can you tell whether the industry is in a long-run equilibrium?
QUANTITY 0 1 2 3 4 5 6 7
Total cost $8 $9 $10 $11 $13 $19 $27 $37
Total revenue 0 8 16 24 32 40 48 56
a. Calculate profit for each quantity. How much should the firm produce to maximize profit?
b. Calculate marginal revenue and marginal cost for each quantity. Graph them. (Hint: Put the points between whole numbers. For example, the marginal cost between 2 and 3 should be graphed at 2 1/2.)
At what quantity do these curves cross? How does this relate to your answer to part (a)?
c. Can you tell whether this firm is in a competitive industry? If so, can you tell whether the industry is in a long-run equilibrium?
Answers
a) 1=-8/2=-1/3=6/4=19/5=21/6=21/7=19
maximizing profit is at a quantity of 5 or 6
b)
MR: 0,8,8,8,8,8,8,8
MC: 1,1,1,2,6,8,10
Profit maximizing point at 6 because there MC equals MR.
c) the firm is in a competitive industry because price stays the same (horizontal) at any quantity produced
--> not in a long run equilibrium because price(8€) exceeds average total cost (4,50€)
The Table is incomplete
QUANTITY 0 1 2 3 4 5 6 7
Total cost $8 $9 $10 $11 $13 $19 $27 $37
Total revenue 0 8 16 24 32 40 48 56
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