B. Short-Run Cost of Production Schedule – Product X (Perfect Competition) ATO O

Question

B. Short-Run Cost of Production Schedule – Product X (Perfect Competition) ATO OUTPUT TFC TVC TC MC | AVC 200 200 175 200 300 200 500 200 800 200 1.200 200 1,700 7 200 2,300 (A) Assume price = $250; calculate total profit/loss using TR – TC method. | OUTPUT TR TC PROFIT/LOSS 7 (B) Calculate Output using the formula: Profit = (Price - ATC) x Q Hint: construct a new table to find new output at the different levels of ATC values (in first table) and profit in table 2 when price is $250. (C) Calculate Output using the formula: Profit = (Price - ATC) x Q Hint: construct a new table to find new output at the different levels of ATC values (in first table) when price is $180. Also find new profit/loss values first. Calculate Output using the formula: Profit = (Price - ATC) x Q Hint: construct a new table to find new output at the different levels of ATC values (in first table) when price is $140. Also find new profit/loss values first. (E) Use price schedule to determine Q's. (Repeat the process for prices $350, $450,, $550, and $650 before presenting all the output computed at different price levels in the table below. (F) What does short-run cost model tell you about the behavior of the firm in regard to MC and Price?

Explanation / Answer

TC = Fixed + variable cost.

MC = chnage in total cost/change in output

ATC = TC/Q

AVC = TVC/Q

a.

TR = P * Q

PRofit = TR - TC.

b. Profit = (P - ATC) * Q

We can re-write this as, Q = Profit/(P - ATC).

c.

d.

Output TFC TVC TC MC AVC ATC 0 200 0 200 nil nil nil 1 200 175 375 175 175 375 2 200 300 500 125 150 250 3 200 500 700 200 166.67 233.33 4 200 800 1000 300 200 250 5 200 1200 1400 400 240 280 6 200 1700 1900 500 283.33 316.67 7 200 2300 2500 600 328.57 357.14

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