Question

5) Suppose we return to look at the first restaurant in question 2 another time. Suppose the restaurant space costs $100 per day and workers cost $50 per day. AFC AVC AC MC Fixed Cost Variable Cost Total Cost Workers (Headcou nt) 0 Output (Revenue Per Day) 0 50 150 300 400 450 480 500 f. Suppose the restaurant is in a perfectly competitive market. In this case, since output is measured in $ of revenue, this implies the restaurant's price is 1 for all levels of output. Add that line to your graph above. What level of output will the restaurant pick? g. Is the profit maximizing level of output above, below, or at the point of minimum AC? Does the restaurant make a profit in this example?

Answer 1

Refer the attached picture for the table

LQ FC VCTC AFC AVC ATC MC 0 0 100 0 100 - 1 50 100 50 150 2 1 3 1 2 150 100 100 200 0.67 0.67 1.33 0.5 3 300 100 150 250 0.33 0.5 0.83 0.33 4 400 100 200 300 0.25 0.5 0.75 0.5 5 450 100 250 350 0.22 0.56 0.78 1 6 480 100 300 400 0.21 0.63 0.83 1.67 7 500 100 350 450 0.2 0.7 0.9 2.5

F. Under perfect competition the firms maximizes profit at P = MC.The price is $ 1 (as provided in the question). Therefore the firm should produce and sell 450 units and hire 5 units of labor. As for the given output level the P = MC.

Output = 450

Labor = 5 units.

Refer the attached picture

1 Cost Per Unit 1 1 1 100 200 400 500 600 300 Quantity

G. At the given level the AC is below the price therefore, the firm is making profit. Here, the firm is making profit.

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