Question: A firm is selling its product in a perfectly competitive market, and t

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Question:

A firm is selling its product in a perfectly competitive market, and the price for its product is $100. Based on the table, explain why the AVC and ATC curves are U-shaped.

I need help with this question. Assuming i am correct for part a, is part b correct? Also, can i get an answer for part c?

A firm is selling its product in a perfectly competitive market, and the price for its product is S100 Total roduct 0 FC | VC | TC ATC AFC AVC MC TR MR Profit 30 0 30 90 120 12030 30 170200100 15 30 240 270 90 30 30 90 85 80 30 300 33082.57.5075 72 75 90 80 70 60 60 90 -20 100 100 200100 300 100 400100 500100 600100 10 30 70 110 120 4. 30 36039078 30 45048080 30 540 570 81.4 4.29 77.14 90 700 100130 30 650680853.7581.25 90 800100 30 780810 903.33 86.67 130 900100 150 1000 100 120 90 70 10 30 930 96096 93 Calculate the TC, ATC, AFC, AVC, MC, TR, MR, and profit (8 marks) At what price and output level will the above firm maximize its profit? Explain your answer. (4 marks) At a $100 price, the firm will be maximizing profit at a quantity of 7 product. This is because if the firm will produce a quantity of 8, then they will only be receiving a profit of S120. They may be receiving more revenue; however, they will be seeing less profit. On the other side if they produce a quantity of 6 product, they will also only be receiving $120 of profit. Therefore, a quantity of 7 product gives them the maximized profit of S130. Based on the table, explain why the AVC and ATC curves are U-shaped. (6 marks)

Explanation / Answer

c. This is because of the variable proportions, an it has three stages

Increasing returns to scale, constant returns to scale and the diminshing returns to scale. In the stage of increasing returns to scale when the firm increases the production the average cost falls. This is clearly visible from the table as the prduction starts both the ATC and the AVC starts falling upto a certain point. Then it starts to increase and here the dimnishing returns to scale producing one more unit of the commodity increases the average cost.

b. In the perfect competition the profit maximizing condition is where the marginal revenue equals the marginal cost. Here the profits will be maximized at the 7th unit of the product, this is because the producing another unit of the commodity increased the cost but not increased the profit. There is reduction in the profit when the firm produces the 8th unit, from the 9th unit onwards the marginal cost outweigh the marginal revenue so it is not efficient to produce. (your ans is also correct)

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