Question

1. The table below shows part of the cost structure (total fixed cost, total variable cost, and total cost) for a typical producer of olive oil -- a perfectly competitive industry.

1. Copy the table into Excel and use it to calculate average total cost and marginal cost for all quantities from 1 to 10. Use Excel (following the hints in QSet 2, #9) to produce a diagram of the firm’s average total cost and marginal cost curves.

2. If the price of oil is $10 a bottle, approximately what quantity will this producer make? (You will get credit for answering anywhere within 0.2 units of the correct answer.)

Q	TFC	TVC	TC
0	10	0	10
1	10	8	18
2	10	14	24
3	10	18	28
4	10	24	34
5	10	32	42
6	10	43	53
7	10	58	68

Answer 1

a). The average total cost is calculated by dividing the total cost by the quantity produced.

The marginal cost is the addition made to the total cost when an additional unit of the commodity is produced, the marginal cost calculated by

b). In the perfect competition the price is also equal to the marginal revenue and the firms produce where the profits are maximized and that is marginal revenue equal to the marginal cost of the production. So here the firm would produce 5.8 units of the commodity.