Question

Unit 9— Cost, Revenue, and Profit

The table shows the quantity produced and the total, average, variable, cost, and marginal costs for a firm. Complete the table.

Quantity	Total Cost	Variable Cost	Fixed Cost	Average Total Cost	Average Variable Cost	Average Fixed Cost	Marginal Cost
0		0		N/A	N/A	N/A	N/A
1	100	50					50
2		95
3	180	130					35
4				50			20
5	225	175				10	25
6	261	211
7							49
8	385	335
9		450
10	685					5	185

Graph the total cost, variable cost, and fixed cost curves.

Assume the price is $50, draw the total revenue curve and identify the profit maximizing output level and the maximum profit

Graph the average total cost, average variable, average fixed, and marginal cost curves

Assume the price is $50, draw the marginal revenue curve and identify the profit maximizing output level and shade in the total profit.

Answer 1

TC = FC + VC [where FC = TC - VC = 100 - 50 = 50] = ATC x Q

VC = TC - FC = Q x (ATC - AFC)

ATC = TC/Q

AVC = VC/Q

AFC = FC/Q

MC = Change in TC / Change in Q

Q	TC	VC	FC	ATC	AVC	AFC	MC
0	50	0	50	N/A	N/A	N/A	N/A
1	100	50	50	100	50	50	50
2	145	95	50	72.5	47.5	25	45
3	180	130	50	60	43.33	16.67	35
4	299	150	50	50	37.5	12.5	20
5	225	175	50	45	35	10	25
6	261	211	50	43.5	35.17	8.33	36
7	310	260	50	44.29	37.14	7.14	49
8	385	335	50	48.125	41.875	6.25	75
9	500	450	50	55.56	50	5.56	115
10	685	635	50	68.5	63.5	5	185

(I)

(II)

TR = P x Q

Profit = TR - TC

Q	TR	TC	Profit
0	0	50	-50
1	50	100	-50
2	100	145	-45
3	150	180	-30
4	200	299	-99
5	250	225	25
6	300	261	39
7	350	310	40
8	400	385	15
9	450	500	-50
10	500	685	-185

Profit is maximized when Q = 7 where (TR - TC) is maximized.

Maximum profit = 40

(c)

(d)

When price is constant, MR = Price = $50.

Profit is maximized when MR (Orange color straight line) intersects MC at point E with output = 7. Profit is the shaded area.