Question

Output      Total Cost       TR          Profit          MR                MC           ATC

(per hour)__($ per hour)        _______________________________________________

          0             10                  0          -10                   -                       -                       -

          1             12                  10        2                      10                    2                      12

          2             16                  20        4                      10                    2                      8

          3             21                  30        9                      10                    1.67                 7

          4             30                  40        10                    10                    2.25                 7.5

          5             45                  50        5                      10                    3                      9                    

1. Find short-run profit-maximizing or loss-minimizing output per hour, Q*.
2. Sketch by hand MR, MC, ATC, mark Q*, firm’s profit/loss, and explain whether the firm is making or losing money.
3. At what approximate price would this firm break even (have zero profits)?
4. How will the firms’ profit maximizing decision change if the market price falls to $5? Find the firm’s Q* and profit / loss at this price.
5. Explain what additional information you would need in order to determine whether the firm will stay in business in the short-run at this price.

               

Answer 1