Question

# Consider a price-taking firm in a perfectly competitive market. The market equilibrium dictates that the price...

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?

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.

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