Question

Mayfair Office Chairs, Inc. is a small firm in the office furniture industry. They have asked you to help them complete the limited data they have gathered in an effort to enable effective decision-making. Some work can be done using MS Excel but it must be copied to an MS Word file for the final submission of this assignment. To assist Mayfair Office Chairs, Inc., respond to the following: Using MS Excel or a table in MS Word, complete Table-1 (Mayfair Office Fairs, Inc., Cost and Revenue Data). Create Demand and Supply Curve Assume that the price is $165. Assume the fixed costs are $125, at an output level of 1. Assume that the data represents a firm in pure competition. Show your calculations. Explain the MC=MR Rule. Describe the market structures to which this rule applies. Create a chart to illustrate the data in Columns 9 and 10. Describe the profit maximizing (or loss minimizing) output for this firm. Explain why or why not there an accounting profit? Explain why a firm in pure competition is considered to be a “price taker.”

Answer 1

OUTPUTPRICE		TFC	TVC	TC	AFC	Avc	ATC	TR	MC	MR	profit -125
0	165	125	0	125	nil	nil	nil	0	)	0
1	165	125	113	238	125	113	238	165	113	165	-73
2	165	125	213	338	63.	107.	169	330	100	165	-8
;	165	125	300	425	46.66670000	100	142.		37	165	70
	165	125	375	500	31.	94.	125	660	75	165	160
	165	125	463	588	25	93.	118.	825	88	165	237
6	165	125	563	588		20.8333393.83333114.6667990			100	165	302
	165	125	675	800		17.8571496.42857114.28571155			112	165	355
8	165	125	813	938	16.	102.	117.	1320	138	165	382
9	165	125	975	1100		13.88889108.3333122.22221485			162	165	385
10	165	125	1163	1288	13.	116.	129.	1650	188	165	362

Total cost is the summation of total fixed cost and total variable costs.

AFC = TFC/output

AVC =1VC/output

ATC = TC/output

Total revenue = price times output.

Marginal cost = change in TR/change in output.

Marginal revenue = change in TR/change in output.

MC=MR rule says that this determines the profit maximizing level of output. That is, when an additional revenue earned by selling one more unit of output equals the additional cost incurred by selling the same another unit of output. This rule applies to market structures where there is some degree of price making.

Profit maximizing level of output is determined at a point where the marginal cost equals the price (as it is pure competition). The nearest value where MC=P is at 9 units.

The firm is earning an economic profit, as it is = total revenue - total cost.

Profit = 385. It is earning a profit because its revenue exceeds its costs.

Affirm under pure competition is considered as a price taker because there are infinite number of buyers and sellers present in the market, selling same homogenous goods. they cannot increase/decrease the prices. Being a highly competitive market, they are forced to sell their product at marginal cost. And hence are price takers.