# 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 (a) 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. (b) 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 (c) 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. (d) 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 (a) 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. (b) 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 (c) 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

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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