Question
In: Economics
The above table gives the quantity of output and the total cost for a perfectly competitive firm that can sell all of its output at $9 per unit
Quantity (units) | Total cost (dollars) |
0 | 3 |
1 | 6 |
2 | 12 |
3 | 21 |
4 | 33 |
5 | 49 |
The above table gives the quantity of output and the total cost for a perfectly competitive firm that can sell all of its output at $9 per unit
a) Find the profit maximizing level of output for this firm.
(Show your work and explain). (3 points) (world limit: 100)
b) How much economic profit is the firm making?(Show your work and explain) (3 points) (world limit: 100)
Solutions
Expert Solution
a.) For profit-maximizing level of output, we need to equate Marginal revenue to Marginal cost. Since perfectly competitive firm can sell all its output $9 per unit, it means it's average revenue and marginal revenue both are same which is horizontal to output at $9 .
| Output | Marginal Cost |
| 0 | -- |
| 1 | 3 |
| 2 | 6 |
| 3 | 9 |
| 4 | 12 |
| 5 | 16 |
Note= formula used , Marginal Cost(n) = Total Cost(n) - Total Cost(n-1)
Therefore, profit-maximizing level output is 3 units.
b.) Economic profit = total revenue - total cost
= Quantity×Price - total cost
= 3×9 - 21
= 27 - 21
= $6
Rahul Sunny answered 2 years agoRelated Solutions
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