Question

# Consider total cost and total revenue given in the following table: Quantity 0 1 2 3...

Consider total cost and total revenue given in the following table:
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 2½.) 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?

a)

 Quantity Total Cost (\$) Total Revenue(\$) Profi = TR-TC MR = ΔTR / ΔQ MC = ΔTC / ΔQ ATC 0 8 0 -8 1 9 8 -1 8 1 9.00 2 10 16 6 8 1 5.00 3 11 24 13 8 1 3.67 4 13 32 19 8 2 3.25 5 19 40 21 8 6 3.80 6 27 48 21 8 8 4.50 7 37 56 19 8 10 5.29

Profit maximizing output level is 6 units.

b) Both MC and MR curve crosses at the level of output when 6 unit is produced. At this output level profit is maximum.

c) Yes, this firm is in a competitive firm industry as P=MC=MR at the profit maximum level and it is charging the market price thus acting as a price taker. No, the industry is not in a long run equilibrium as P ATC because in long run in a competitive firm industry firm has a zero economic profit as P = ATC.

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