Question

A company is selling its products at $15. The market structure is a perfect competition and the company cannot change its price.

a. Complete the following table for the company.

Q

VC

FC

TC

MC

AVC

AFC

ATC

Profit

0

0

$8

1

10

2

17

3

25

4

40

5

60

6

100

b. What is the formula for profit maximization?

c. What is the maximum profit for this company according to the formula in part b?

Answer 1

Q	VC	FC	TC	MC	AVC	AFC	ATC	AR	Profit
0	0	8	8	-	-	-	-	15	-
1	10	8	18	10	10	8	18	15	-3
2	17	8	25	7	8.5	4	12.5	15	2.5
3	25	8	33	8	8.3	2.7	11	15	4
4	40	8	48	15	10	2	12	15	3
5	60	8	68	20	12	1.6	13.6	15	1.4
6	100	8	108	40	16.6	1.3	17.9	15	-2.9

A) Total cost = Variable cost+ Fixed cost

B) Marginal Cost= TCn_ TCn-1

C) Average variable cost= Variable cost/ Output

D) Average fixed cost= Fixed cost/ Output

E Average Total cost = Average cost/ output

B) In the perfect competition profits are earned where difference in AC and AR is Maximum in the short run.

C) The maximum profits are earned at output 3. The reason here, difference in AC and AR is Maximum in the short run.