Question

1. Fill in the following cost table.  For the first few rows, you can work from left to right.  However, as you get to the last two rows, you will need to use the information from the right side of the table to work back to the left side. We do not calculate average costs at a quantity of 0.

Q	TFC	TVC	TC	AFC	AVC	ATC	MC
0	5,000	0	5000	XXXXXX	XXXXXX	XXXXXX	XXXXXX
1		3.000	8000	5000	3000	8000	3,000
2		5,000	10000	2500	2500	5000	2000
3		6000	11,000	1667	2000	3667	1000
4		8000	13000	1250	2000	3,250	2000
5		12000	17000	1000	2400	3400	4,000

1. Can you tell if this is the short run or long run?  Explain
2. Can you tell which level of output yields the highest profit?  If so, what is the output level?  If not, explain.

Answer 1

TFC is 5000 for all level of output .

also , TFC = TC - TVC = 5000 in the question at all levels

a ) This is a situation of short run as it has both fixed and variable cost of output as in long run there are no fixed cost. because all factor of production are variable .

b ) NO ,we cannot tell the profit maximising output level as such decision takes into consideration not only the marginal cost but also the marginal revenue which is not given in the question .

Profit maximising output occurs at level. where MR = MC. Since we don't have any information about MR , so we cannot tell .