Question

In: Economics

Suppose that a firm in a competitive market faces the following revenues and costs:

Suppose that a firm in a competitive market faces the following revenues and costs:

Quantity

Total Revenue

Total Cost

0

$0

$3

1

$7

$5

2

$14

$8

3

$21

$12

4

$28

$17

5

$35

$23

6

$42

$30

7

$49

$38

A. A competitive firm won’t produce beyond what quantity? Why?

B. What is the marginal cost of the 5th unit?

C. How much should the competitive firm produce to maximize profit?

D. What is the profit at the maximizing quantity?

Solutions

Expert Solution

MR = Change in TR / Change in Q

MC = Change in TC / Change in Q

Q TR TC MR MC
0 0 3
1 7 5 7 2
2 14 8 7 3
3 21 12 7 4
4 28 17 7 5
5 35 23 7 6
6 42 30 7 7
7 49 38 7 8

a. Firm will produce not more than 6 units. Because at this level of output MR = MC and profit will be maximumm

b. MC of 5th unit = 6

c. Firm should produce 6 units to maximize profit

d. Profit = TR - TC = 42 - 30 = 12

Rahul Sunny answered 2 years ago
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