a. Fill in the formula for AFC, AVC, ATC, MC, TR, MR, and Total Profit at the to
ID: 1235259 • Letter: A
Question
a. Fill in the formula for AFC, AVC, ATC, MC, TR, MR, and Total Profit at the top of the column in the gray section within the table.
b. Fill in the missing values for TFC, TVC, AFC, AVC, ATC, MC, TR, MR, and Total Profit in the blue sections of the table
c. Determine the profit maximizing level of output. Explain how you arrived at that conclusion.
d. What is the total profit at the profit maximizing level of output? How does that compare to profit at other levels of output?
e. What is the lowest price that Winsome Widgets will accept and continue to produce in the short run? Explain.
f. Is Winsome Widgets in long-run equilibrium? Explain.
Task 2: Given a numeric production schedule, you will calculate profit and make decisions about short-run profitability to answer questions relating to your calculations. Jerry
Explanation / Answer
1a)
FORMULAS:
AFC=TFC/Output(Q)
AVC=TVC/Output(Q)
ATC=AFC+AVC
MC=TC/Q [TC=total cost, Q=output]
TR=Price(P)*Output(Q)
MR=TR/Q
Profit()=TR-TC
1b)
Q TFC TVC TC AFC AVC ATC MC TR MR
0 100 - 100 - - - - - - -100
10 100 50 150 10 5 15 50 60 - -90
20 100 80 180 5 4 9 30 120 60 -60
30 100 100 200 3.33 3.33 6.66 20 180 60 -20
40 100 160 260 2.5 4 6.5 60 240 60 -20
50 100 200 300 2 4 6 40 300 60 0
60 100 275 375 1.66 4.58 6.24 75 360 60 -15
70 100 375 475 1.42 5.35 6.77 100 420 60 -55
80 100 500 600 1.25 6.25 7.5 125 480 60 -120
90 100 650 750 1.11 7.22 8.33 150 540 60 -210
100 100 900 1000 1 9 10 250 600 60 -400
Total =-1090
1c)
Here we are getting negative profits for every level of output i.e we are having loss. Hence the firm cannot maximise it's profit. However the firm incurr minimum loss(or zero profit situation) of 0 at the output level 50. Therefore it output level 50 can be said to be as the profit maximising level of output as at that level loss in minimum compared to the other output levels
1d)
At output level 50, total profit is zero. The firm earns normal profit (no profit no loss situation). In the other output levels the total profit is negative i.e the firm incurr supernormal loss.
1e)
The lowest Price will be $20 (as seen from the MC column). Marginal cost is the addition to total cost as one more unit of output is produced. The MC curve must be U-shaped.
1f)
The long run is equilibrium is not obtained. Because with per unit costof production in the long run the profit generated is negative.
P.S : The data as you have given are so small that it cannot be identified properly. What i can see i,ve done the sum accordingly. There can be some mistakes in the data itself. But the calculations are correct as per as my knowledge. In general and according to my idea, profit cannot come negative in all the cases. The data may be improper. If it is correct, then the sum is correct as well.
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