Question

# COSTS REVENUES Quantity Produced Total Cost Marginal Cost Quantity Demanded Price Total Revenue Marginal Revenue 0...

 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?

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.

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