Question

4. The data in the table below give information about the price in dollars) for which a firm can sell a unit of output and the total cost of production. a. Fill in the blanks in the table. RT MCMRR MRT PP=60 CP=60 P=60 P=60P-50 P=50 P=50 0 60 100 1 60 150 2 60 178 3 60 198 4 60 212 5 60 230 6 60 250 7 60 272 8 60 310 9 60 355 10 60 410 11 60 475 Problem Set 8 - AREC 326 b. Show what happens to the firm's output choice and profit if the price of the product falls from $60 to $50.

Answer 1

Q	P	TR	TC	PROFIT	MC	MR	TR(50)	MR	PROFIT
0	60	0	100	-100			0		-100
1	60	60	150	-90	50	60	50	50	-100
2	60	120	178	-58	28	60	100	50	-78
3	60	180	198	-18	20	60	150	50	-48
4	60	240	212	28	14	60	200	50	-12
5	60	300	230	70	18	60	250	50	20
6	60	360	250	110	20	60	300	50	50
7	60	420	272	148	22	60	350	50	78
8	60	480	310	170	38	60	400	50	90
9	60	540	355	185	45	60	450	50	95
10	60	600	410	190	55	60	500	50	90
11	60	660	475	185	65	60	550	50	75

The firm sets MC=MR for profit maximization so when the price decreases from 60 to 50

Initially,at P=60 the firm will produce 10 units where Profits = 190

When the Price decreases to 50, the firm will produce 9 units where Profit = 95