Question

3. The price of strawberries is $10 a bucket. Three competitive strawberry farmers, X, Y, and Z, face different cost conditions:

	Total Cost (thousands of dollars)
Thousands of Buckets	X	Y	Z
10	100	275	50
20	200	335	125
30	300	400	225
40	400	470	350
50	500	545	500
60	600	625	675
70	700	710	875
80	800	800	1100

3.1. For each farmer, calculate the marginal cost at each output level.

3.2. What are the profit-maximizing output levels of the three farmers, and what are their profits at those outputs?

Answer 1

3

For firm x all levels of output yield P=MC=MR
Since this is a perfectly competitive firm he will produce 80 units of output (profit=0)

For firm y profit is maximized at 80 units of output (profit=0)

For firm z profit is maximized at 30 units of output (profit=75)

Formulas used:
MC= Change in total cost/Change in output level
MR*= Change in total revenue/Change in output level
(*Please note that for a perfectly competitive firm P=MR=AR)
Total Revenue=Price* Profit
Profit=Total Revenue-Total Cost

Output	TCX	MCx	TCY	Mcy	TCZ	MCz	TR=10Q	MR
10	100		275		50		100
20	200	10	335	6	125	7.5	200	10
30	300	10	400	6.5	225	10	300	10
40	400	10	470	7	350	12.5	400	10
50	500	10	545	7.5	500	15	500	10
60	600	10	625	8	675	17.5	600	10
70	700	10	710	8.5	975	30	700	10
80	800	10	800	9	1100	12.5	800	10
	Profit(x)=TR-TCx		Profit(y)=TR-Tcy		Profit(z)=TR-TCz
	0		-175		50
	0		-135		75
	0		-100		75
	0		-70		50
	0		-45		0
	0		-25		-75
	0		-10		-275
	0		0		-300