You are operating a firm in a perfectly competitive market. In the short run, you have...

You are operating a firm in a perfectly competitive market. In the short run, you have fixed costs of $30. Your variable costs are given in the following table:

Q	VC
0	0
1	100
2	150
3	180
4	220
5	300
6	390

If the market price is $56, what is the profit-maximizing level of output?

Solutions

Expert Solution

We know,

Total Cost (TC) = Variable Cost (VC) + Fixed Cost (FC)

Profit = Price*Quantity - TC

As given,

Price = $56

FC = $30

So, Using above formula and table as given in question :

Q	VC	TC = VC + 30	Profit
0	0	30	(56*0) - 30 = -30
1	100	130	(56*1) - 130 = -74
2	150	180	(56*2) - 180 = -68
3	180	210	(56*3) - 210 = -42
4	220	250	(56*4) - 250 = -26
5	300	330	(56*5) - 330 = -50
6	390	420	(56*6) - 420 = -84

So,

From above calculations we can see that maximum profit of -$26 is at Q = 4.

So, Profit maximizing level of output is 4

Rahul Sunny answered 1 year ago

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