Question

COSTS			REVENUES
Quantity Produced	Total Cost	Marginal Cost	Quantity Demanded	Price	Total Revenue	Marginal Revenue
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	97	7	$80	560	80
8	$585	120	8	$80	640	80

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

c) Based on profit maximization rule that you learned in Chapter 14 for competitive firms, what is the profit maximizing output?

2) For the following firm in a competitive market,

a) What is the profit maximizing quantity (approximately) when the market price is 8? How did you find it?

b) What will this firm do if the price falls to $5 in short run and long run?

Answer 1

B and C part are solved. For Q2 all the details are not given so it is assumed that only B and C part above Q2 are asked.

B) Marginal Revenue is constant or same for each level of output.

C) The optimal output is at a point where marginal cost is equal to the marginal revenue. Marginal cost should also be increasing before that output level.

From the table it is clear that this is happening at output level 6. Thus 6 is optimal output where Marginal revenue= marginal cost = 80.