Question

The table below contains information about the production, costs and profits of a firm.

The price faced by the firm is $40 per unit.

There are 50 empty cells in the table.

(a) Fill in all the empty cells.

Output	Total Fixed Costs	Total Variable Costs	Marginal Costs	Average Variable Costs	Average Fixed Costs	Average Total Costs	Price per unit	Profits
0	12
1	12	50	50.0	50.0				-22.0
2	12	75	25.0	37.5		43.5
3			10.0	28.3
4			20.0	26.3
5		133	28.0	26.6
6		160		26.7
7		198		28.3
8	12	270	72.0					38.0
9	12	320	50.0
10	12	400		40.0	1.2	41.2

(b) Identify the output level at which profits are maximized. Show that this confirms the profit maximizing rule for the perfectly competitive firm.

Answer 1

a. Filling the blanks.

Output	Total Fixed Costs	Total Variable Costs	Marginal Costs	Average Variable Costs	Average Fixed Costs	Average Total Costs	Price per unit	Profits
0	12
1	12	50	50	50	12	62	40	-22
2	12	75	25	37.5	6	43.5	40	-7
3	12	85	10	28.3	4	32.3	40	23
4	12	105	20	26.3	3	29.3	40	43
5	12	133	28	26.6	2.4	29	40	55
6	12	160	27	26.7	2	28.7	40	68
7	12	198	38	28.3	1.71429	30.0143	40	70
8	12	270	72	33.75	1.5	35.25	40	38
9	12	320	50	35.55555556	1.33333333	36.8888889	40	28
10	12	400	80	40	1.2	41.2	40	-12

The price faced by the firm is $40 per unit.

The Price or Average Revenue in a perfectly competitive firm is also equals to its Marginal revenue (Price = AR = MR)

(b) The firm will maximize the profit at the output level 7.

At output 7 the firms Profit is $70.

The profit maximizing output rule is MR=MC. At output level 7 only the MR = MC (Almost very near). At output level 7 the MR = 40 and MC is 38. In no other output level they are so close to each other. Also only at this level of output the profit is maximum which indicates this confirms the profit maximizing rule for the perfectly competitive firm.