Question

show all steps and formulas

The table below shows the cost and revenue data for a firm in a perfect competitive market. Q Profit/ TR. MR MC ATC VC AVC Loss 0 20 50 68 2. 88 3 104 4 118 130 6 147 7 167 8 199 239 10 293 Complete the table State the profit maximizing quantity and total revenue at this point. State the shutdown rule and provide the shutdown point Calculate the AFC of this firm at the profit maximizing rate of output in (I) above. II. IV. TC

Answer 1

1)

	MR*Q	MR= P =AR		Change in TC	TC/Q	TC-FC		FC=50	TR-TC
Q	TR	MR	TC	MC	ATC	VC	AVC	FC	Profit
0	0	20	50			0		50	-50
1	20	20	68	18	68.00	18	18	50	-48
2	40	20	88	20	44.00	38	19	50	-48
3	60	20	104	16	34.67	54	18	50	-44
4	80	20	118	14	29.50	68	17	50	-38
5	100	20	130	12	26.00	80	16	50	-30
6	120	20	147	17	24.50	97	16	50	-27
7	140	20	167	20	23.86	117	17	50	-27
8	160	20	199	32	24.88	149	19	50	-39
9	180	20	239	40	26.56	189	21	50	-59
10	200	20	293	54	29.30	243	24	50	-93

　

2) Profit maximisation where MR=MC; thus profit maximisation quantity is 7 and total revenue equals 140

3) The shut down rule states that a firm in the short run may continue to operate when price exceeds average variable costs. Thus at 9 unist AVC exceeds the MR thus firm should shutdown at this point

4) AFC at 7 units = FC/No of units = 50/7 = $7.14