Question

Rewrite these or use the attached Excel file and compute the missing cells. Gather graph paper...

Rewrite these or use the attached Excel file and compute the missing cells. Gather graph paper and plot these coordinates for 3 curves: Qty v. ATC, Qty v. MC, Qty v. Price. Qty will be on the horizontal axis. All questions will refer to this graph. FC, VC, Price are given. The last row Qty 10 is calculated for you.

Qty FC VC AVC TC ATC MC Price TR MR Profit
0 $10 $6
1 10 7 6
2 10 12 6
3 10 16 6
4 10 20 6
5 10 23 6
6 10 27 6
7 10 32 6
8 10 39 6
9 10 49 6
10 10 63 6.3 73 7.3 14 6 60 6 -13
  • Qty: Quantity to be produced in a batch
  • FC: Fixed Cost (given) (rent)
  • VC: Variable Cost (supplies/labor) (given) It may take a different amount of supplies/labor to make different size batches.
  • AVC: Average Variable Cost (VC/Qty) Supplies/labor for each unit on avg.
  • TC: Total Cost to make chosen Qty (including FC) FC+VC
  • ATC: Average Total Cost (cost per unit on average) TC/Qty
  • MC: Marginal Cost (additional cost to make that next unit)
  • Price: Revenue per unit (given) For Perfect Competition, is the same as MR or D.
  • TR: Total Revenue (incoming Revenue for the whole batch) Income
  • MR: Marginal Revenue (additional revenue for that next unit) For Perfect Competition, is the same as Price. Not for Monopoly!
  • Profit: Total profit made (TR-TC) Revenue minus expenses

Question 5 (1 point)

What is the Marginal Revenue (MR) for the 5th unit?

a

-$3

b

$30

c

$33

d

$6

Question 6 (1 point)

What is the optimal quantity to produce?

a

10

b

7

c

8

d

0

e

5

f

6

Question 7 (1 point)

How much Economic Profit would be made at the optimal production quantiity?

a

$0

b

-$10

c

$42

d

6

e

-$13

Homework Answers

Answer #1

Q5) Marginal revenue of 5th unit = total revenue of 5th unit - total revenue of 4th unit

= 5*6 - 4*6 = 30-24 = 6 (d)

Q6) Optimal quantity to produce is a point beyond which the marginal cost of production exceeds the marginal revenue of production. This happens when q = 7 as t 8 units, MC = 39-32 = 7 > 6 = MR. Thus, the answer is (b) 7

Q7) Economic profit at 7 units = total revenue - tptals costs

= pq - fixed cost - variable cost

= 6*7 - 10 - 32

= 42-42 = 0

Thus, the answer is (a)

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