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?

Homework Answers

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.

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