Question

1. For the following firm in a competitive market,

COSTS			REVENUES
Quantity Produced	Total Cost	Marginal Cost	Quantity Demanded	Price	Total Revenue	Marginal Revenue
0	$0	--	0	$80		--
1	$50		1	$80
2	$102		2	$80
3	$157		3	$80
4	$217		4	$80
5	$285		5	$80
6	$365		6	$80
7	$465		7	$80
8	$585		8	$80

1. Fill the column for marginal cost, total revenue and marginal revenue.
2. What is interesting about the numbers you find for marginal revenue.
3. Based on profit maximization rule that you learned in Chapter 14 for competitive firms, what is the profit maximizing output? Explain how you found your answer.

2. For the following firm in a competitive market,

1. What is the profit maximizing quantity (approximately) when the market price is 8? How did you find it?
2. What will this firm do if the price falls to $5 in short run and long run?  

Answer 1

a.

Q	TC	MC	Q	Price	TR	MR
0	0		0	80	0
1	50	50	1	80	80	80
2	102	52	2	80	160	80
3	157	55	3	80	240	80
4	217	60	4	80	320	80
5	285	68	5	80	400	80
6	365	80	6	80	480	80
7	465	100	7	80	560	80
8	580	115	8	80	640	80

MC=change in TC/change in Q

TR=price*Q

MR=change in TR/change in Q

b.What is interesting about the numbers you find for marginal revenue.

it is equal to the price. when a firm is a price taker, MR=price.

MR is extra revenue generated by a firm with the selling of one more extra unit. because the price is the same at every level of output MR also will be same.

c.Based on profit maximization rule that you learned in Chapter 14 for competitive firms, what is the profit maximizing output? Explain how you found your answer.

Ans: 6 units

Explanation: firm maximizes its profit where MR equals MC. here at Q=6, MR equals MC.