Question

Consider total cost and total revenue given in the following:
(Quantity/Total Cost/Total Revenue):
(0/8/0), (1/9/8), (2/10/16), (3/11/24), (4/13/32), (5/19/40), (6/27/48), (7/37/56)

Can you tell whether this firm is in a competitive industry? If so, can you tell whether the industry is in a long-run equilibrium?

Isn't this firm a competitive industry since the price is equal to the marginal revenue?

This is obviously a competitive industry because the average revenue is always the same. But the euqilibrium is not the long run euilibrium because at the equilibrium average cost and average revevue are not equal to each other.

This is obviously a competitive industry because the average revenue is always the same. But the euqilibrium is not the long run euilibrium because at the equilibrium average cost and average revevue are not equal to each other.

Answer 1

a) The firm is indifferent betwen 5th and 6th quantity of output as the maximum profit it makes is on 5th and 6th quantity.

Cells Editing ANTI TOTAL COST 0 TOTAL REVENUE PROFIT MO MR Chart Title 10 16 8 10 13 19 27 37 13 19 21 21 32 48 7 56 19 10s MC-MR

b) The curves crosses each other at 6th quantity of output. By this approach of MC=MR, we can say that the firm should produce 6 units of output.

c) Yes the firm is ina competitive industry as AR is constant through each unit of output. NO, the industry is not in a long-run equilibrium as at 6th unit of output, price is greater than AC.

Answer 2

A)

Qty.	TC	TR	PROFIT(TR-TC)
0	8	0	-8
1	9	8	-1
2	10	16	6
3	11	24	13
4	13	32	19
5	19	40	21
6	27	48	21
7	37	56	19

As observed from the above table, the Firm should produce 6 units to maximize profit. Profit is calculated as TR-TC.

B)

Qty.	TC	AC	TR	MR	TFC	AFC	TVC	AVC	MC
0	8	-	0	-	8	-	0	-	-
1	9	9	8	8	8	8	1	1	1
2	10	5	16	8	8	4	2	1	1
3	11	3.67	24	8	8	2.67	3	1	1
4	13	3.25	32	8	8	2	5	1.25	2
5	19	3.8	40	8	8	1.6	11	2.2	6
6	27	4.5	48	8	8	1.3	19	3.167	8
7	37	5.29	56	8	8	1.14	29	4.14	10

MR=MC when the firm produces 6 units of output. This matches with the answer we found in part A. The graph is at the end of the answer.

C)Yes. this firm is in a competitive industry as the Price is constant and not varying for changing levels of output.

The firm is not operating in the long run as in the long run all factors of production and costs are variable.The graph for part B.

Answer 3

a. Profit = TR - TC

Q	TC	TR	Profit = TR-TC
0	8	0	-8
1	9	8	-1
2	10	16	6
3	11	24	13
4	13	32	19
5	19	40	21
6	27	48	21
7	37	56	19

To maximize profit, the firm must produce either 5 or 6 units.

b. Below are the marginal revenue and marginal costs for each quantity -

Marginal revenue is the additional revenue that the firm earns when the output is increased by 1 unit.
Marginal cost is the additional cost that the firm incurs when the output is increased by 1 unit.

Q	TC	TR	Profit = TR-TC	MR	MC
0	8	0	-8
1	9	8	-1	8	1
2	10	16	6	8	1
3	11	24	13	8	1
4	13	32	19	8	2
5	19	40	21	8	6
6	27	48	21	8	8
7	37	56	19	8	10

c) Yes, the firm is in competitive industry since its marginal revenue (MR) is constant across all output levels which means that it is a price. It sells all the output at a given price.

No, its not a long run equilibrium position since it is not earning zero economic profits.