Question

                                                                                 SHOW YOUR WORK

1. The Elsie Dairy Company produces 1,000 gallons of chocolate milk per day, and sells it at a price of $1.50 per gallon. Its total fixed cost is $200 per day and its total variable cost is $150 per day.

a) Is this firm earning a profit? How much? Show the calculations that led to your answer. (Use back of page.)

b) If it is earning a profit, is it maximizing its profit? Explain.

2. What is the rule of profit maximization? How can this rule be restated when the firm is a price taker?

3. Given the following information:

Quantity	Average Fixed Cost	Average Variable Cost	Average Total Cost	Marginal Cost
1	300	100	400	100
2	150	75	225	50
3	100	70	170	60
4	75	73	148	80
5	60	80	140	110
6	50	90	140	140
7	43	103	146	180
8	38	119	157	230
9	33	138		290
10	30	160		360

a) If market price is $140, then…

1. the firm will produce quantity ___________

2. Total revenue = _____________

3. Total cost = _______________

4. Profit for this firm = _______________

b) If market price is $230, then…

1. the firm will produce quantity ___________

2. Total revenue = _____________

3. Total cost = _______________

4. Profit for this firm = _______________

c) If market price is $80, then…

1. the firm will produce quantity ___________

2. Total revenue = _____________

3. Total cost = _______________

4. Profit for this firm = _______________

                      

Answer 1

Yes the firm earned profits of 1150$.

b. No it is not maximizing profit  

2. The rule of profit maximizing in an monopoly is MR = MC. Marginal revenue = Margimal cost. In case of perfect commpetition market the condition for profit maximization

Is MR = MC = P.