Cheek Cell 56 58 Il. The Perfect Competition: Cost and Output Determination: Fil

Question

Cheek Cell 56 58 Il. The Perfect Competition: Cost and Output Determination: Fill the red-colored cells Tehal Total Averoge Average Average Marginal Cost frem Q-1 te Q Tetel cases Flxed Variable Flced -1.Ball Bearings, Inc. feces costs of producion as follows The priee of a cese of ball bearings is $50,100 s0 10000 5000 which is given by the competitive market 2 1070 50.00 3S00 in the short run 0 100 62 63 150 170 190 150.00 85.00 63.33 50 500 300 100 90 33.33 10140 25.00 100 200 2000 100 360 20 50 60 160 60.00 7687 68 Hote that hotol revnse total omount of money a seller receive for selling o specified wnits of goods. For a competetive firm, Total Revenue (TR)-Prke Ote fat overoge revese IAR-average price, for competitre "r" AR = P ote hat morgnal .evenue (MR)-increase n tonal revenue (TR) by seling one more o' odpd for o c..enve res MR = P 1.1 Seeing that she can't make a profin, te First you'd better create new columns for total revenue and CEO decides to shut down operations for a while. What are the firm's profits /losses s50°O 70 73 75 76 dollars Total Profit/loss = Total Revenue . Total Cost, where Total Revenue Price"Q Please, be noted that Fixed cost must be paid even after a factory shuts down for a while. $50-a 1.2 Vaguely remembering his introductory economics course, the CFO tells the CEO a is better t produce 1 case of ball bearings, becouse marginal revense (price) equals marginal cost from 0 to 1 cave, which is $50 What are the firm's profits/ losses at that level of production? dollars 80 totel revense and otal cost if one unt in produced and sold Then you com tigare oun the profe or loss by soving hotal re whot will be the If you are the firm's CEO, how many cases would you produce in order to maximize profits or minimizes losses 82 1.4 What are the firm's profits or losses at the production level which makes firm's profits maxim orlosses are mn ged a,quothy sotifying MR " MC, Note a competitive firm's MR P (price) 85 86 Total Peolt/la: Total Revenue Total Cost, where Total Revenue Price-Q dollars DOL

Explanation / Answer

1.1. There is no production when operations are shut down. Hence Q is 0 and so Total cost is 100. There is no revenue so there is a loss of 100 dollars.

1.2 This is not the production level that will maximize the profit because MR = MC should be true for a rising MC and here MC is falling. At Q = 1, Total revenue is 50*1 = 50 while total cost is 150. Hence there is a loss of 100 dollars.

1.3. We would look for a quantity at which MR = rising MC. This occurs when Q = 4. At this level MC is 50 and rising. Profit is maximum at Q = 4.

1.4. Profits are equal to TR - TC. TR is 4*50 = 200 and TC is 240 so there is a loss of 40 dollars. There are losses everywhere in this table because minimum of ATC is 60 while the price is only $50. Hence firm cannot maximize the profit but can only minimize the loss.

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