1)
ChemCo is a price-taker able to receive $10 for each bottle of vitamins they sell. At the profit maximizing level of production their AVC = $5 and AFC = $3. Given the following points on their MC curve, what is their maximum possible profit?
Quantity | 0 | 100 | 200 | 300 | 400 | 500 | 600 |
Marginal Cost | n/a | $8 | $4 | $6 | $8 | $10 | $15 |
Group of answer choices
a No profit
b $4000
c $5000
d $1000
e $500
2)
Assume a price-taking firm faces the following marginal costs:
Quantity | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
Marginal Cost | n/a | 4 | 3 | 5 | 6 | 8 | 10 |
If the market price is $8 and this firm has no fixed costs, how much profit will it make?
Group of answer choices
a profit = 64
b profit = 14
c profit = 10
d profit = 40
1. Ans: d) $1000
Explanation:
Under perfect competition , the profit maximization condition is where price equals marginal cost ( P = MC).
So , at the profit maximizing level ;
Output ( Q ) = 500
Total Revenue = Price * Quantity = $10 * 500 = $5000
ATC = AFC + AVC = $3 + $5 = $8
Total cost = ATC * Q = $8 * 500 = $4000
Profit = Total Revenue - Total cost = $5000 - $4000 = $1000
Quantity | Marginal Cost |
0 | n/a |
100 | 8 |
200 | 4 |
300 | 6 |
400 | 8 |
500 | 10 |
600 | 15 |
2.Ans: b) profit = 14
Explanation:
Under perfect competition , the profit maximization condition is where price equals marginal cost ( P = MC).
So , at the profit maximizing level of output is 5.
Marginal cost = Change in total cost / Change in Quantity
Quantity | Marginal Cost | TC | TR | Profit / Loss |
0 | n/a | 0 | 0 | 0 |
1 | 4 | 4 | 8 | 4 |
2 | 3 | 7 | 16 | 9 |
3 | 5 | 12 | 24 | 12 |
4 | 6 | 18 | 32 | 14 |
5 | 8 | 26 | 40 | 14 |
6 | 10 | 36 | 48 | 12 |
1) ChemCo is a price-taker able to receive $10 for each bottle of vitamins they sell....
ChemCo is a price-taker able to receive $10 for each bottle of vitamins they sell. At the profit maximizing level of production their AVC = $5 and AFC = $3. Given the following points on their MC curve, what is their maximum possible profit? Quantity 0 100 200 300 400 500 600 Marginal Cost n/a $8 $4 $6 $8 $10 $15 Group of answer choices No profit $4000 $5000 $1000 $500
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