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Problem one

Q |
TC |
TFC |
TVC |
ATC |
AVC |
MC |

0 |
– |
100 |
– |
Xxx |
Xxx |
xxx |

1 |
180 |
100 |
80 |
180 |
80 |
180 |

2 |
250 |
100 |
150 |
125 |
75 |
70 |

3 |
310 |
100 |
210 |
103.3 |
70 |
60 |

4 |
400 |
100 |
300 |
100 |
75 |
90 |

5 |
550 |
100 |
450 |
110 |
90 |
150 |

6 |
750 |
100 |
650 |
125 |
130 |
200 |

7 |
1100 |
100 |
1000 |
157.14 |
142.86 |
350 |

8 |
1600 |
100 |
1500 |
200 |
187.5 |
500 |

- If the price is $200, the firm will produce 6 units of output. This is because the firm will produce at a point where marginal cost equals to marginal revenue which is equal to the price of output.

MC = MR =P, therefore, MC = MR = 200.

- Profits equals total revenue minus total cost

Π = TR – TC,

TR = PQ = 200 x 6 = 1200

TC = 750

Therefore, π = 1200 – 750

Thus, profits at this level of production is $450

- If the market price is $350, the firm will produce 7 units. This is because the firm will produce at a point where marginal cost equals to marginal revenue which is equal to the price of output.

MC = MR =P, therefore, MC = MR = 350.

- Profits equals total revenue minus total cost

Π = TR – TC,

TR = PQ = 350 x 7 = 2450

TC = 1100

Therefore, π = 2400 – 1100

Thus, profits at this level of production is $1300

Part two

- In a perfectly competitive market, firm maximizes profit at a point where marginal cost equals to marginal revenue, which is also the price of the output. Therefore, from the graph profit maximizing output is 1,350 units.
- Profits equals total revenue minus total cost

Π = TR – TC,

TR = PQ = 20 x 1350 = 27,000

TC = ATC x Q = 1,350 x 15 = 20,250

Therefore, π = 27,000 – 20,250

Thus, profits at this level of production is $6,750

- The firm’s level of total fixed cost equals total cost minus total variable cost

TFC = TC – TVC

TC = ATC x Q = 1,350 x 15 = 20,250

TVC = AVC x Q = 11 x 1,350 = 14,850

TFC = 20,250 – 14,850

Therefore, total fixed cost equals $5400

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