Question

Part II: Study Problem Answer the following questions using the cost curves for the price-taking firm shown in the figure below SMC 3.50 3.00 2.50 ATC AVC 2.00 1.50 1.00 0.50 0 1,000 2,000 4.000 3000 Quantity 13. If price is $3 per unit of output, draw the marginal revenue curve. The manager should produce units. 2 14. Since average total cost is S S for this output, total cost is 15. The firm makes a profit of S 16. Let price fall to S1, and draw the new marginal revenue curve. The manager should now produce units 17. At a price of S1, total revenue is now S The firm makes a loss of S and total cost is 18. At a price of $1, total variable cost is S to apply to fixed cost. leaving the firm will produce zero output 19. If price falls below S (eop) ssoo pue aoud

Answer 1

MC -P=AR=MR Price ATC AVC Quantity.

13). The manager should produce at the profit maximizing quantity that is where the marginal cost equals the marginal revenue. He should produce 4000 units of the commodity.

14). The average total cost is $2, so the total cost would be $8000.

TC = ATC XQ

  .

= 2 x 4000

.

= 8000

15).

Profit .

=(3-21 4000

= 4000.

Profit $

16).

MC Price ATC AVC P=AR=MR - 2000 Quantity.

The manager should produce 2000 units.

17).

.

TR = P x 2

.

= 1 x 2000

.

= 2000

.

TC = 1.5 x 2000

  .

= 3000

LOSS = .

= -1000

18).

.

TVC = AVCXQ

  

= 0,5 x 2000

.

= 1000

. (Fixed cost).

FC = 2000

19). If the price falls below $0.5 the firm produce zero units.