Question

1. You open a perfectly competitive firm making sandwiches, with the given quantity and total cost schedules. Fill in the missing columns, and then determine your level of output and amount of profit you will earn if the price of sandwiches is a) $7; b) $5.80; c) $4.20; and d) $2.

Quantity	Total Costs	Variable Costs	Average Total Costs	Average Variable Costs	Marginal Costs
0	30	0	----	----	----
5	45
10	55
15	76
20	105
25	140
30	185

Answer 1

Profit is maximized where marginal revenue is equal to marginal cost

Output	Fixed Cost	Variable Cost	Total Cost	Average Fixed Cost	Average Variable Cost	Average Total Cost	Marginal Cost
0	30	0	30	--	--	--	--
5	30	15	45	6	3	9	3
10	30	25	55	3	2.5	5.5	2
15	30	46	76	2	3.066667	5.066667	4.2
20	30	75	105	1.5	3.75	5.25	5.8
25	30	110	140	1.2	4.4	5.6	7
30	30	155	185	1	5.166667	6.166667	9

Total Cost = Fixed Cost + Variable Cost

Average Fixed Cost = Fixed Cost / Output

Average Variable Cost = Variable Cost / Output

Average Total Cost = Total Cost / Output

Marginal Cost = Change in Total Cost / Change in Output

A) At a price of $7

Output	Price	Total Revenue	Marginal Revenue	Marginal Cost
0	7	0	--	--
5	7	35	7	3
10	7	70	7	2
15	7	105	7	4.2
20	7	140	7	5.8
25	7	175	7	7
30	7	210	7	9

As marginal revenue and marginal cost are equal at 25 hence profit will be maximized at 25 units

Profit = Total Revenue - Total Cost

Profit = 175 - 140

Profit = 35

B) At a price of $5.80

Output	Price	Total Revenue	Marginal Revenue	Marginal Cost
0	5.8	0	--	--
5	5.8	29	5.8	3
10	5.8	58	5.8	2
15	5.8	87	5.8	4.2
20	5.8	116	5.8	5.8
25	5.8	145	5.8	7
30	5.8	174	5.8	9

As marginal revenue and marginal cost are equal at 20 hence profit will be maximized at 20 units

Profit = Total Revenue - Total Cost

Profit = 116 - 105

Profit = 11

C) At a price of $4.20

Output	Price	Total Revenue	Marginal Revenue	Marginal Cost
0	4.2	0	--	--
5	4.2	21	4.2	3
10	4.2	42	4.2	2
15	4.2	63	4.2	4.2
20	4.2	84	4.2	5.8
25	4.2	105	4.2	7
30	4.2	126	4.2	9

As marginal revenue and marginal cost are equal at 15 hence profit will be maximized at 15 units

Profit = Total Revenue - Total Cost

Profit = 63 - 76

Profit = -13

D) At a price of $2

Output	Price	Total Revenue	Marginal Revenue	Marginal Cost
0	2	0	--	--
5	2	10	2	3
10	2	20	2	2
15	2	30	2	4.2
20	2	40	2	5.8
25	2	50	2	7
30	2	60	2	9

As marginal revenue and marginal cost are equal at 10 hence profit will be maximized at 10 units

Profit = Total Revenue - Total Cost

Profit = 20 - 55

Profit = -35