Question

2. Farmer X figures that her fixed costs are $2,000, and the relevant portion of her total cost curve is:

            Thousands of            Total Cost

            Bushels          (in thousands of dollars)

            10                                    10.70

            11                                    11.45

            12                                    12.25

            13                                    13.10

            14                                    14.00

            15                                    15.00

            16                                    16.10

            17                                    17.32

            18                                    18.75

            19                                    20.30

2.1. Calculate Farmer X’s schedules of average cost, marginal cost, total variable cost, and average variable cost.

2.2. If Farmer X is a perfect competitor, what level of output should she produce, and what will her profits be, if the market price is:

      (i)   $1.50   (iii) $0.92

            (ii) $1.00          (iv) $0.82

Answer 1

Output	TC	TVC=TC-2000	AC=TC/Q	MC=change in TC	AVC=VC/Q
10	10700	8700	1070		870
11	11450	9450	1040.909091	750	859.0909091
12	12250	10250	1020.833333	800	854.1666667
13	13100	11100	1007.692308	850	853.8461538
14	14000	12000	1000	900	857.1428571
15	15000	13000	1000	1000	866.6666667
16	16100	14100	1006.25	1100	881.25
17	17320	15320	1018.823529	1220	901.1764706
18	18750	16750	1041.666667	1430	930.5555556
19	20300	18300	1068.421053	1550	963.1578947

A perfectly competitive firm produces until P>=MC

if price is
i)1.5 the firm will produce 18000 units
ii)0.92 the firm will produce 14000 units
ii)1 the firm will produce 15000 units
iv)0.82 the firm will produce 12000 units