Question

1. A. Graph the short-run supply curve for a perfectly competitive firm and explain where this short-run supply curve lies. Indicate the following curves on your graph: marginal cost curve, marginal revenue curve, average-total-cost curve, average-variable-cost curve, short-run supply curve.

B Complete the chart for Elmer's Wheat farm.

Quantity of Output	Total Cost	Average Total Cost	Marginal Cost	Price	Total Revenue	Marginal Revenue	Profit/ Loss
0	$75	$ ---	$ ---	$ ---	$0	$ ---	- $75
1	220			150
2	305			150
3	370			150
4	400			150
5	440			150
6	520			150
7	630			150
8	810			150
9	1,100			150
10	1,500			150

C.Draw a graph for Elmer's wheat farm showing the marginal cost, average total cost, demand, marginal revenue, and average revenue. Indicate the level of profit where profit is maximized, shade in the area of maximum profit, give the amount of maximum profit, and explain how this number is calculated.

Answer 1

450 350 300 250 -Average Total Cost Marg inal Cost E 200 Demand 150 -Marginal Reve nue ーAverage Revenue Σ 100 50 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity

The profit is maximized at Q=7

Maximum profit = $420

Profit = Total Revenue - Total Cost = 7*150-630 = $420