Question

Question 1 (3 points) Note: It is best to fill out the full table, even if the question doesnt ask for it. It never hurts to practice filling these out. Price per Unit Total Revenue (dollars) Quantity Demanded (units) 10 Marginal Revenue (dollars) Total Cost of Marginal Cost Production (dollars) (dollars) $530 540 II 550 560 575 595 625 15 16 55 1. What is the firm's profit-maximizing output? What is the price charged to sell this output? Calculate ATC at the profit maximizing quantity. (1.5 points) 2. When producing the profit-maximizing output, what is the amount of the firm's profit? (0.5 point) 3. If the price fell from $80 to $75, calculate the price and output effect (1 point)?

Answer 1

profit C MC 3) 850 TR MR - to 30 900 20 910 10 10340 350 T 530 540 550 560 575 595 625 70 65 10 To 15 20 30 350 + 335 305 255 14 75 16 910 900 Go to 880 -20

1)The profit Maximizing output is there,where ,

MR=MC.

MR=MC=10 at Q=70,

So profit Maximizing output is 13 and associated price 70.

ATC=TC/Q=560/13=43.07

2) profit of firm =TR-TC=910-560=350

3)when price Decreases ,each quantity sold at a lower price so total revenue Decreases ,it is price effect.

Due to price Decrease , quantity Increases which Increases total revenue,it is quantity effect.

And price + quantity effect=Total effect

When price falls from 80 to 75 ,TR change=900-880=20( total effect)

With decreased price and same quantity ,TR=75*11=825

Price effect=825-880=-55

And quantity effect=total effect- price effect=20-(-55)=20+55=75