Question

A perfectly competitive industry is composed of 1000 identical firms with cost structure: TCVC FC AVC ATC MC 40 10 80 20 100 30 140 40 200 280 60 380 a) Complete the preceding Table. b) Assuming that the market price is p = 8, what are the quantity produced by each firm and the profit it makes?

Answer 1

FC TR TCVC 40 0 0 8 0 100 140 200 280 380 AVC ATC MC P 40 ... ... ... 40 4 8 4 40 3 5 2 40 3.333333 4.666667 40 4 5 6 4.8 5.6 40 5.666667 6.333333 60 100 160 240 340 30 40 600 ANA Profit 0 -40 80 160 60 240 100 320 120 400 120 480 100 co Coco Coco Coco 40

Since TC=TFC+TVC

ATC=TC/Q

AVC=TC/Q

AFC=TFC/Q

MC=TCn-TCn-1

b.

Since perfectly competitive firm profit-maximizing condition is

P=MC

Corresponding to this condition on the quantity axis, the quantity will be determined and corresponding to this quantity on the demand curve price will be determined.

Profit-maximizing quantity and profit of each firm are;

Q=50 units

Profit=$120