Question

Chapter 9 Perfect Competition Fill {3} & {5} (1) Total columns (2) Total Marginal Revenue Total Cost (5) Marginal Cost Product Revenue 0 270 340 655 786 917 1048 1179 880 1310 1030 Questions 1. What rule do you use to determine the quantity (max.profits) that will maximize profits? Write out the rule here.

if you can include step by step that would be awesome. getting confused

Answer 1

TR TC 0 Profit -100 90 -59 80 -8 7053 60 124 3 4 MR 0... 131 262 393 524 655 786 917 1048 1179 1310 131 131 131 131 131 131 131 131 131 MC 100 ... 190 270 340 400 470 550 640 750 880 1030 185 6 8 0 236 277 298 299 280 110 130 150 9 131

1.

The profit-maximizing condition of firm is

MR=MC

Or MR> MC

Hence according to the profit-maximizing condition profit-maximizing quantity is 9 units.

2.

The profit at profit-maximizing quantity is $299.

3.

The highest profit this firm can earn is =$299.

4.

The characteristic of a purely competitive seller's (price taker's) demand is Price and marginal revenue are equal at all levels of output. This is because Price is same for all level of output and it is the marginal revenue also. Hence MR and Price line are same and it is a horizontal line.

Since the MR is same for each units of output. Hence it is a perfectly competitive firm.

5.

The shut-down condition of the perfectly competitive firm is

P=MC=Minimum of AVC

Hence it can be said that if the firm price is below average total cost but above AVC the firm will continue to produce at a loss.