Question

The Marginal Principle states, “Increase the level of activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost.” The Widget Factory makes and sells widgets in a perfectly competitive market, operating in the short term. Fixed cost per widget is $4 Labor costs is $23 per worker Widgets sell for $13 each (Revenue price per unit) Workers 10 11 12 13 14 15 16 17 Output 6 30 41 46 50 53 55 56 Using the data from above:.

Graph the Marginal Cost (MC), the Marginal Revenue (MR), and the Average Total Cost (ATC). What level of output will the firm select, and how many employees will be hired? What is the economic profit at this level of output, and what is the economic profit at output levels slightly above and slightly below this level?

Answer 1

No. of workers	Output	Fixed cost	Variable cost	Total cost	Marginal cost	ATC	Revenue	Marginal Revenue	Profit
10	6	24	230	254		25.40	78		-176
11	30	120	253	373	119	33.91	390	312	17
12	41	164	276	440	67	36.67	533	143	93
13	46	184	299	483	43	37.15	598	65	115
14	50	200	322	522	39	37.29	650	52	128
15	53	212	345	557	35	37.13	689	39	132
16	55	220	368	588	31	36.75	715	26	127
17	56	224	391	615	27	36.18	728	13	113

No. of workers	Marginal cost	ATC	Marginal Revenue
10		25.40
11	119	33.91	312
12	67	36.67	143
13	43	37.15	65
14	39	37.29	52
15	35	37.13	39
16	31	36.75	26
17	27	36.18	13

Firm will select 15 number of workers and 53 units of output to maximize the profit level of $132.

Economic profit = Revenue – cost = 689 – 557 = $132

Just above optimum level of output, the output level is 55 unit.

Economic profit = 715-588 = $127

Just below optimum level of output, the output level is 50 unit.

Economic profit = 650-522 = $128