Question

2.) Fill in the following table: Show work if possible

Output	Total Cost	Fixed Cost	Variable Cost	ATC	AFC	AVC	MC
0	100
1	122
2	142
3	154
4	176
5	201
6	235
7	270
8	326
9	398
10	490

b.) Now suppose this firm is in a perfectly competitive industry. The market price of the output is $25. How many units of output will this firm choose to produce in the short run? What is the profit at that level of output?

Answer 1

The table with the columns filled :

Output	TC	FC	VC	ATC	AFC	AVC	MC
0	100	100	0
1	122	100	22	122.00	100.00	22.00	22
2	142	100	42	71.00	50.00	21.00	10
3	154	100	54	51.33	33.33	18.00	4
4	176	100	76	44.00	25.00	19.00	5.5
5	201	100	101	40.20	20.00	20.20	5
6	235	100	135	39.17	16.67	22.50	5.66
7	270	100	170	38.57	14.29	24.29	5
8	326	100	226	40.75	12.50	28.25	7
9	398	100	298	44.22	11.11	33.11	8
10	490	100	390	49.00	10.00	39.00	9.2

TC = Totalcost

FC = Fixed cost

VC = Variable cost

ATC = Average total cost

AFC = Average fixed cost

AVC = Average variable cost

MC = Marginal cost

Calculation:

FC is $100 because TC is 100 when output is 0. As TC= FC + VC, it means there is no VC part in that TC as output is 0. So TC is only the FC part. FC is the same for all levels of output. Th efirm has to incur it whether there is production or not.

VC = TC - FC. So, wehn output is 1, VC = 122-100 = 22. So on.

ATC is the average total cost. ATC = TC/ Quantity. At output level 1, ATC = 122/ 1 = 122

AFC = FC/ Quantity. At output level 1, AFC = 100/ 1 = 100

AVC = VC/ Quantity. At output level 1, AVC = 22/ 1 = 22

MC is the cahnge in TC divided by change in Quantity.

At output level 1, MC = (122-100)/ (1-0) = 22/1 =22

b) If this firm is in a perfectly competitive industry, we need to find total revenue (TR) and marginal revenue (MR) to find the equilibrium level of output and profits.

Output	TR	MR	MC
0	0
1	25	25.00	22
2	50	12.50	10
3	75	8.33	4
4	100	6.25	5.5
5	125	5.00	5
6	150	4.17	5.56
7	175	3.57	5
8	200	3.13	7
9	225	2.78	8
10	250	2.50	9.2

Column of MC is copied again for ready reference.

Calculation of output:

In a perfectly competitive market, output is when MR = MC.

So output = 5.

Calculation of profit:

TR when price is $25:

5 * $25 = $125. (TR = Quantity * Price)

Total cost at output 5 = 201 (from the table)

Therefore profit = TR - TC =250 - 201 = 49

Profit = $49