Question

Output (Cases)	Fixed Cost	Variable Cost	Total cost	ATC	AVC	MC ( ДтсдQ )
0	20	-	20
1	20	12	32	32.00	12.00	12
2	20	20	40	20.00	10.00	8
3	20	28	48	16.00	9.33	8
4	20	37	57	14.25	9.25	9
5	20	47	67	13.40	9.40	10
6	20	61	81	13.50	10.17	14
7	20	81	101	14.43	11.57	20
8	20	116	136	17.00	14.50	35
9	20	171	191	21.22	19.00	55
Output(Cases)	MC	TC	MR ()	TR (P = $20)	Total Profit (TR-TC)	Marginal Profit
0		20		0	-20
1	12	32	20	20	-12	8
2	8	40	20	40	0	12
3	8	48	20	60	12	12
4	9	57	20	80	23	11
5	10	67	20	100	33	10
6	14	81	20	120	39	6
7	20	101	20	140	39	0
8	35	136	20	160	24	-15
9	55	191	20	180	-11	-35

1. What do you think would happen if Price dropped to $15? Describe.
2. What do you think would happen if Price increased to $25? Describe

Answer 1

If price is dropped to $15,

In a competitive market, a competitive firm increases output as long as Price is higher than or equal to marginal cost to maximize the profit.

We can see MC is lower than $15 for 6th unit of output but MC is higher than price for 7th unit of output. So, optimal output will now be 6 units (cases).

Total Cost for output of 6 units=TC=$81

Total Revenue for output of 6 units=TR=Price*output=15*6=$90

Profit=TR-TC=90-81=$9

If price is increased to $25,

In a competitive market, a competitive firm increases output as long as Price is higher than or equal to marginal cost to maximize the profit.

We can see MC is lower than $25 for 7th unit of output but MC is higher than price for 8th unit of output. So, optimal output will now be 7 units (cases).

Total Cost for output of 6 units=TC=$101

Total Revenue for output of 6 units=TR=Price*output=25*7=$175

Profit=TR-TC=175-101=$74