Question

Output	Fixed Cost	Variable Cost	Total Cost	Average Fixed Cost	Average Variable Cost	Average Total Cost	Marginal Cost
0.00	10.00	-	10.00	-	-	-	-
1.00	10.00	10.00	20.00	10.00	10.00	20.00	10.00
2.00	10.00	18.00	28.00	5.00	9.00	14.00	18.00
3.00	10.00	23.00	33.00	3.33	7.66	11.00	5.00
4.00	10.00	33.00	43.00	2.50	8.25	10.75	10.00
5.00	10.00	48.00	58.00	2.00	9.40	11.60	15.00
6.00	10.00	68.00	78.00	1.66	11.33	13.00	20.00
7.00	10.00	98.00	108.00	1.42	14.00	15.42	30.00
8.00	10.00	148.00	158.00	1.25	18.50	19.75	50.00

1. Assume the company, above, is in a Perfect Competition Industry: if a product is sold at $200, what will the profits be and how many will be sold at that price? Can the company raise the price?
   
2. Assume the company, above, is in a Perfect Competition Industry: What would the profit situation be at a price of $300? How many should be sold at that price?
   
3. Assume the company, above, is in a Perfect Competition Industry: What would the profit situation be at a price of $100? How many should be sold at that price?

Answer 1

In perfect competition, P >= MC.

(I) When P = 200, Q = 8 since this is the maximum output for which price is higher than MC.

Profit = Q x (P - ATC) = 8 x (200 - 19.75) = 8 x 180.25 = 1442

So firm will earn positive profit.

In perfect competition, each firm is a price taker and cannot set their own price. So firm cannot increase price.

(II) When P = 300, Q = 8 since this is the maximum output for which price is higher than MC.

Profit = Q x (P - ATC) = 8 x (300 - 19.75) = 8 x 280.25 = 2242

So firm will earn positive profit.

(III) When P = 100, Q = 8 since this is the maximum output for which price is higher than MC.

Profit = Q x (P - ATC) = 8 x (100 - 19.75) = 8 x 80.25 = 642

So firm will earn positive profit.