Question

nue Schedules for Tucker Tomato Farm, Inc. Carnataen OUTPUT TONS PER MONTH) TOTAL COST PRICE PER TON MARGINAL COST AVERAGE VARABLE COST AVERAGE TOTAL COST PROFITS (MONTH) $500 500 500 $1,000 1,200 1,350 1,550 1,900 2,300 2,750 3,250 3,800 4,400 5,150 IIIIIIIIIII IIIIIIIIIII 500 500 500 16. In the accompanying table, you are given information about two firms that compete in a price-taker market. Assume that fixed costs for each firm are $20. a. Complete the table. b. What is the lowest price at which firm A will produce? c. How many units of output will it produce at that price? (Assume that it cannot produce fractional units.) d. What is the lowest price at which firm B will produce? e. How many units of output will it produce? f. How many units will firm A produce if the market price is $20? g. How many units will firm B produce at the S20 price? (Assume that it cannot produce fractional units.) h. If each firm's total fixed costs are $20 and the price of output is $20, which firm would earn a higher net profit or incur a smaller loss? i. How much would that net profit or loss be? Asterisk denotes questions for which answers are given in Appendix B.

Answer 1

Marginal Cost = Total Cost_n - Total Cost_n-1

Average Variable Cost = Variable Cost / Output

Fixed Cost = 1000

Variable Cost = Total Cost - Fixed Cost

Average Total Cost = Total Cost / Output

Profits = Total Revenue - Total Cost

Output (Tons per month)	Total Cost	Price Per Ton	Marginal Cost	Average Variable Cost	Average Total Cost	Profits (Monthly)
0	$1000	$500	-		-	500*0-1000=-1000
1	$1200	$500	1200-1000 = 200	200/1 = 200	1200/1=1200	500*1-1200=-700
2	$1350	$500	1350-1200 = 150	350/2 = 175	1350/2=675	500*2-1350=-350
3	$1550	$500	1550-1350=200	550/3 = 183.3	1550/3=516.7	500*3-1550=-50
4	$1900	$500	1900-1550= 350	900/4 = 225	1900/4=475	500*4-1900=100
5	$2300	$500	2300-1900=400	1300/5= 260	2300/5=460	500*5-2300=200
6	$2750	$500	2750-2300=450	1750/6=291.7	2750/6=458.3	500*6-2750=250
7	$3250	$500	3250-2750=500	2250/7=321.4	3250/7=464.3	500*7-3250=250
8	$3800	$500	3800-3250=550	2800/8=350	3800/8=475	500*8-3800=200
9	$4400	$500	4400-3800=600	3400/9=377.8	4400/9=488.9	500*9-4400=100
10	$5150	$500	5150-4400=750	4150/10=415	5150/10=515	500*10-5150=-150

b. Lowest price at which Firm A will produce is $1900. when it starts drawing profits of $100.

c) It will produce 4 units of output at that price.

d) Lowest price at which Firm B will produce is also $1900 as same as Firm A.

e) It will also produce 4 units of output.

f) If the market price is $20, Firm A will produce 6 units where it earns the highest profit of $250.

g) Firm B will also produce 6 units at a market price of $20.

h) The firm which has lower variable cost will earn higher profit or incur a smaller loss.

i) Net profit /Loss = -350 at 2 units of output.