Question

1. Consider a price-taking firm in a perfectly competitive market. The market equilibrium dictates that the price is $14.  Use this information, along with the information given, to complete the table below.  Remember, economic profit is total revenues minus total costs.

Quantity	Total Revenue	Marginal Revenue	Total Cost	Marginal Cost	Economic Profit	Average Total Cost
0		-	10	-	-	-
1			24
2			34
3			42
4			49
5			57
6			67
7			81
8			99
9			123

b. What is the profit maximizing number the firm should produce each day?

Answer 1

Solution:

uantity	Total Revenue	Marginal Revenue	Total Cost	Marginal Cost	Economic Profit	Average Total Cost
0	0	-	10	-	-	-
1	1*14=14	14-0=14	24	14	-10	24/1=24
2	28	14	34	10	-6	34/2=17
3	42	14	42	8	0	14
4	56	14	49	7	7	12.25
5	70	14	57	8	13	11.4
6	84	14	67	10	17	11.1
7	98	14	81	14	17	11.5
8	112	14	99	18	13	12.4
9	126	14	123	24	3

b. The firm should produce where MR=MC. That means profit maximizing quantity = 7 at which price = MR=MC=7.