Question

a-   Use the following data and find MC, AC, MR, and TP. Also, knowing P=100, decide how many units you produce?

. b-   Change the price to P2=120. How many will you produce?

c-   Use numbers from a, an b, and show a supply relation and plot it.

Q   TC    MC   AC   TR   MR   TP   

1 -  70

2 - 120

3 - 180

4 -  280

5 - 400

6 - 600

Answer 1

(a)

Q	TC	MC	AC	TR	MR	TP
1	70		70	100		1
2	120	50	60	200	100	2
3	180	60	60	300	100	3
4	280	100	70	400	100	4
5	400	120	80	500	100	5
6	600	200	100	600	100	6

MC = change in TC / Change in Q

AC = TC / Q

TR = Q * Price

MR = Change in TR / Change in Q

TP = Q

At optimal production point; MR = MC.

=> MR=MC =100 corresponding to 4 units of output.

Hence, the firm will produce 4 units.

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(b)

Now price is 120.

Q	TC	MC	AC	TR	MR	TP
1	70		70	120		1
2	120	50	60	240	120	2
3	180	60	60	360	120	3
4	280	100	70	480	120	4
5	400	120	80	600	120	5
6	600	200	100	720	120	6

MC = change in TC / Change in Q

AC = TC / Q

TR = Q * Price

MR = Change in TR / Change in Q

TP = Q

At optimal production point; MR = MC.

=> MR=MC =120 corresponding to 5 units of output.

Hence, the firm will produce 5 units.

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(c) MC curve is the supply curve for the firm .

I.e., P = MC (Supply curve equation)

Q		Supply curve (MC)
1		-----
2		50
3		60
4		100
5		120
6		200