5. A perfectly competitive firm\'s total cost (TC) schedule is given in the foll

Question

5. A perfectly competitive firm's total cost (TC) schedule is given in the following Table. Use this information to answer the questions that follow. Units of output (Q)Total cost (TC) $20 52 90 130 175 227 285 345 407 4. If the market price per unit of output is $60, how many units of output (Q) should the firm produce if the goal is to maximize profits? [10 points] a. b. At the market price of $60, what is the firm's total revenue if it is producing its profit- maximizing level of output? [2 points] c. At the profit-maximizing level of output, what is the firm's average total cost (ATC)? [2 points] d. What is the firm's maximum possible profit? [2 points]

Explanation / Answer

Answer

TC=TVC+TFC

FC=TC-VC

AFC=FC/Q

AVC=VC/Q

ATC=TC/Q

MC of n the unit=(TC of n units -TC of p units )/(n-p)...............n>p

TR=P*Q

MR of n th unit=(TR of n units -TR of p units)/(n-p)...................n>p

profit=TR-TC

The firm produces at MR=MC or the closet lower MC

a)

Q=8 units, MC=P the profit maximizing condition.

b)

TR=P*Q=8*60=480

c)

ATC=TC/Q=345/8=43.125

d)

Profit=TR-TC=480-345=135

Q TC MC TR Profit 1 20 20 60 40 2 52 32 120 68 3 90 38 180 90 4 130 40 240 110 5 175 45 300 125 6 227 52 360 133 7 285 58 420 135 8 345 60 480 135 9 407 62 540 133

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