Question

The table below shows the weekly marginal cost (MC) and average total cost (ATC) for Buddies, a perfectly competitive firm that produces novelty ear buds in a competitive market. The market price of ear buds is $6.00 per pair.

Buddies Production Costs

Quantity of Ear Buds	MC	ATC
	($)	($)
5	-	8
10	2	5
15	2.45	4.15
20	3.55	4
25	4	4
30	5.5	4.25
35	6	4.5
40	8.5	5

Instructions: In part a, enter your answer as the closest given whole number.

a. If Buddies wants to maximize its profits, how many pairs of ear buds should it produce?

_______ pairs

Instructions: In parts b-d, round your answers to 2 decimal places.

b. At the profit-maximizing quantity, what is the total cost of producing ear buds?

$___________

c. If the market price for ear buds is $6 per pair, and Buddies produces the profit-maximizing quantity of ear buds, what is Buddies weekly profit?

$___________

d. If the market price is $5.50 per pair, and Buddies produces the profit-maximizing quantity of ear buds, what is Buddies weekly profit?

$___________

e. Buddies earns a normal profit when

$\square$ marginal cost equals average cost at the minimum of average cost.

$\square$ marginal cost equals average cost.

$\square$ marginal cost equals marginal revenue at the minimum of marginal cost.

$\square$ average cost equals average revenue at the minimum of average cost.

Answer 1

Answer
a)
The profit is maximum at MR=MC
Q=35

b)
TC=ATC*Q=4.5*35=157.5

c)
Profit=TR-TC
=(P-ATC)*Q
=(6-4.5)*35=52.5

d)
Profit=(5.5-4.25)*30
=37.5