Question

A business is operating in a perfectly competitive market. Carefully and CLEARLY complete the table below.

Quantity	Price	Total Revenue	Total Fixed Cost	Total Variable Cost	Total Cost	Marginal Revenue	Marginal Cost
0	$21		35	0		-----	-----
1				6
2				11
3				15
4				20
5				26
6				34
7				45
8				60
9				80
10				106

In this situation: what is the business's profit-maximizing price? __________________________________

what is the profit maximizing quantity? ______________________________

  what is the profit or loss? ________________________________________

But now the business faces a price of $9 per unit.

In this situation: what is the profit maximizing price? _________________________________________________

what is the profit maximizing quantity? ___________________________________

  what is the profit or loss? ___________________________________________

Should the business continue to produce in the short run? Why/why not? ______________________

But now the business faces a price of $4 per unit in the marketplace.

In this situation: what is the profit maximizing price? _________________________________________________

what is the profit maximizing quantity? ___________________________________

  what is the profit or loss? _____________________________________________________

Should the business continue to produce in the short run? Why/why not?_____________________________________________________

Answer 1

Quantity	Price	Total Revenue	Total Fixed Cost	Total Variable Cost	Total Cost	Marginal Revenue	Marginal Cost
0	$21	$0	35	0	35	-----	-----
1	$21	$21	35	6	41	21	6
2	$21	$42	35	11	46	21	5
3	$21	$63	35	15	50	21	4
4	$21	$84	35	20	55	21	5
5	$21	$105	35	26	61	21	6
6	$21	$126	35	34	69	21	8
7	$21	$147	35	45	80	21	11
8	$21	$168	35	60	95	21	15
9	$21	$189	35	80	115	21	20
10	$21	$210	35	106	141	21	26

TR=Price*quantity

MR=change in TR/change in Q

TC=FC+VC

MC=change in Total cost/change in Q

FC does not change with quantity.

what is the business's profit-maximizing price?

$21.

Explanation: in perfect competition price is taken by market. so we always choose the market price. here in this case it is $21.

what is the profit maximizing quantity?

9 quantity.

explanation: profit maximization quantity is where MR equals MC. here in this case MR and MC are not equal, so we will select the Quantity where MR is greater than MC, before where MC starts getting greater than MR.

what is the profit or loss?

$74.

explanation:

profit=TR-TC

=189-115

=74.

But now the business faces a price of $9 per unit.

Quantity	Price	Total Revenue	Total Fixed Cost	Total Variable Cost	Total Cost	Marginal Revenue	Marginal Cost
0	$9	$0	35	0	35	-----	-----
1	$9	$9	35	6	41	9	6
2	$9	$18	35	11	46	9	5
3	$9	$27	35	15	50	9	4
4	$9	$36	35	20	55	9	5
5	$9	$45	35	26	61	9	6
6	$9	$54	35	34	69	9	8
7	$9	$63	35	45	80	9	11
8	$9	$72	35	60	95	9	15
9	$9	$81	35	80	115	9	20
10	$9	$90	35	106	141	9	26

what is the profit maximizing price?

$9.

what is the profit maximizing quantity?

quantity 6.

explanation: profit maximization quantity is where MR equals MC. here in this case MR and MC are not equal, so we will select the Quantity where MR is greater than MC, before where MC starts getting greater than MR.

what is the profit or loss?

-$15

explanation:

P=TR-TC

=54-69

=-15.

Should the business continue to produce in the short run? Why/why not?

yes!

firm will shutdown when Price will be less than AVC.

here AVC at quantity 6=34/6=5.67.

which is less than price that is 9.

so firm will operate in short run. because it will cover some portion of fixed cost.

But now the business faces a price of $4 per unit in the marketplace.

Quantity	Price	Total Revenue	Total Fixed Cost	Total Variable Cost	Total Cost	Marginal Revenue	Marginal Cost
0	$4	$0	35	0	35	-----	-----
1	$4	$4	35	6	41	4	6
2	$4	$8	35	11	46	4	5
3	$4	$12	35	15	50	4	4
4	$4	$16	35	20	55	4	5
5	$4	$20	35	26	61	4	6
6	$4	$24	35	34	69	4	8
7	$4	$28	35	45	80	4	11
8	$4	$32	35	60	95	4	15
9	$4	$36	35	80	115	4	20
10	$4	$40	35	106	141	4	26

what is the profit maximizing price?

$4.

what is the profit maximizing quantity?

quantity 3.

Explanation:

Profit is maximized where, MR =MC. here at quantity 3 MR=MC.

what is the profit or loss?

-38.

explanation:

Profit=TR-TC

=12-50.

=-38.

Should the business continue to produce in the short run? Why/why not?

no!

because price is less than AVC. AVC at quantity 3 is =15/3=5.

firm will shut down.

NOTE: in perfect competition Price is equal to Marginal revenue.