Question

suppose a competitive firm has the following cost:

PART 2

This cost table is related to a competitive firm.

Q. TFC TVC TC AVC    ATC MC

0    30   NA    NA NA

1 50

2 66

3 80

4 90

5 100

6 114

7 131.2

8 150

9 190

Using this table above, answer the following questions.

6 Complete the table above.

7 Plot ATC, AVC, and MC in one diagram.

8 What is the shutdown price?

9 At a price of $18.8 how much should the firm produce to maximize profit?

10 At a price of $18.8 calculate its profit.

please show mw how you got the result not only the answer. thank you

Answer 1

6.Ans:

Q	TFC	TVC	TC	AVC	ATC	MC
0	30	0	30	NA	NA	NA
1	30	20	50	20	50	20
2	30	36	66	18	33	16
3	30	50	80	16.67	26.67	14
4	30	60	90	15	22.5	10
5	30	70	100	14	20	10
6	30	84	114	14	19	14
7	30	101.2	131.2	14.46	18.74	17.2
8	30	120	150	15	18.75	18.8
9	30	160	190	17.78	21.11	40

Explanation:

Fixed costs are available even at zero level of output and remain constant throughout the subsequent level of production. In the above table , fixed cost is $30. The following formulas are used to calculate the missing numbers in the table.

TC = TFC + TVC

AVC = TVC / Q

ATC = TC / Q

MC = ∆ TC / ∆ Q

7.Ans: The following diagram shows ATC curve , AVC curve and MC curve.

55 50 45 40 35 30 ATC, AVC & MC AVC 25 ATC 20 MC un 10 5 0 0 1 2 3 10 4 5 6 7 8 9 QUANTITY

8.Ans: The shut down price is $14

Explanation:

Under perfect competiton , the shut down point occurs where price equals to the average variable cost ( P = AVC) or price is less than average variable cost ( P < AVC) . This is at the minimum point on AVC curve.

9.Ans: At a price of $18.8 , the firm should produce 8 units to maximize profits.

Explanation:

Under perfect competition , the profit maximization condition is where price equals marginal cost ( P = MC). In the above scenario , the profit maximizing level of output is 8 units where price equals marginal cost ( P = MC).

10.Ans: At a price of $18.8 , its profit is $0.40

Explanation:

Profit / Loss  = Total Revenue - Total cost

At a price of $18.8 , its profit = $150.40 - $150 = $0.40

Q	TFC	TVC	TC	AVC	ATC	MC	TR	Profit/Loss
0	30	0	30	NA	NA	NA	0	-30.00
1	30	20	50	20	50	20	18.80	-31.20
2	30	36	66	18	33	16	37.60	-28.40
3	30	50	80	16.67	26.67	14	56.40	-23.60
4	30	60	90	15	22.5	10	75.20	-14.80
5	30	70	100	14	20	10	94.00	-6.00
6	30	84	114	14	19	14	112.80	-1.20
7	30	101.2	131.2	14.46	18.74	17.2	131.60	0.40
8	30	120	150	15	18.75	18.8	150.40	0.40
9	30	160	190	17.78	21.11	40	169.20	-20.80