Question

Labor	Q	Total Fixed Cost	Total Variable Cost	Total Cost	Marginal Cost	Average Fixed Cost	Average Variable Cost	Average Total Cost
0	0	25	0
1	4	25	25
2	10	25	50
3	13	25	75
4	15	25	100
5	16	25	125

(a) Complete the blank columns.

(b)    Assume the price of this product equals $10. What’s the profit-maximizing output (q)?  Note: managers maximize profits by setting MR=MC and under perfectly competitive markets, MR=Price. Thus, maximize profit by producing q where P=MC.

(c)    What is the profit?

Answer 1

Quantity	Total Cost	Marginal Cost	AFC	AVC	ATC	Total Revenue	Marginal Revenue	Profit
0	25	25	--	--	--	0	--	-25
4	50	6.25	6.25	6.25	12.5	40	10	-10
10	75	4.16	2.5	5	7.5	100	10	25
13	100	8.33	1.92	5.76	7.69	130	10	30
15	125	12.5	1.66	6.66	8.33	150	10	25
16	150	25	1.56	7.81	9.37	160	10	10

1. Total Cost = Fixed Cost + Variable Cost
2. Marginal Cost = Change in total cost / Change in quantity
3. Average Fixed Cost = Fixed Cost / Quantity
4. Average Variable Cost = Variable Cost / Quantity
5. Average Total Cost = Total Cost / Quantity
6. Total Revenue = Price x Quantity
7. Marginal Revenue = Change in total revenue / Change in quantity
8. Profit = Total Revenue - Total Cost

b) Profit-maximizing will be where MR is equal to MC so from the above table there is no quantity where MR and MC are exactly equal what at 13 units MR and MC are close to equal also profit is maximum at this quantity.

Hence profit-maximizing quantity will be 13 units at a price of $10

c) The profit at the profit-maximizing quantity is $30