Question

Profit Maximization/Loss Minimization

QUESTION: Complete the table and answer the following questions. The price for this perfectly competitive firm is $150.

QTY | FC | VC | TC | AFC | AVC | ATC | MC | MR.

0 | | | 500 | | | | |

1 | | | 650 | | | | |

2 | | | 700 | | | | |

3 | | | 760 | | | | |

4 | | | 840 | | | | |

5 | | | 950 | | | | |

6 | | | 1090 | | | | |

7 | | | 1270 | | | | |

8 | | | 1500 | | | | |

9 | | | 1790 | | | | |

10 | | | 2150 | | | | |

a. Should this firm produce?

b. If so, how many units should it produce?

c. What is the economic profit or economic loss?

Answer 1

The variable are dedined as,

Qty	Quantity
FC	Fixed cost
VC	Variavle cost
TC	Total cost
AFC	Average fixed cost
AVC	Average variable cost
ATC	Average total cost
MC	Marginal cost
MR	Market price

Qty	FC	VC	TC	AFC	AVC	ATC	MC	MR
0	500		500
1	500	150	650	500	150	650	150	150
2	500	200	700	250	100	350	50	150
3	500	260	760	166.6667	86.66667	253.3333	60	150
4	500	340	840	125	85	210	80	150
5	500	450	950	100	90	190	110	150
6	500	590	1090	83.33333	98.33333	181.6667	140	150
7	500	770	1270	71.42857	110	181.4286	180	150
8	500	1000	1500	62.5	125	187.5	230	150
9	500	1290	1790	55.55556	143.3333	198.8889	290	150
10	500	1650	2150	50	165	215	360	150

c)

Qty	MR	TR	Profit = TR-TC
0
1	150	150	-500
2	150	300	-400
3	150	450	-310
4	150	600	-240
5	150	750	-200
6	150	900	-190
7	150	1050	-220
8	150	1200	-300
9	150	1350	-440
10	150	1500	-650

Since TR - TC < 0, there is an economic loss for every quantity produced.

a)

This firm should not produce due to the economic loss.