Question

A perfectly competitive firm has the following fixed and variable costs in the short run. The market price for the firm’s product is $150.

1. Complete the table.

Output	FC	VC	TC	MC	TR	MR	Profit/Loss
0	$100	$0
1	100	100
2	100	180
3	100	300
4	100	440
5	100	600
6	100	780

1. At what output rate does the firm maximize profit or minimize loss?

2. What is the firm’s marginal revenue at each positive level of output? Its average revenue?

3. What can you say about the relationship between marginal revenue and marginal cost for output rates below the profit –maximizing (or loss minimizing) rate? For output rates above the profit maximizing (or loss minimizing) rate?

Answer 1

At what output rate does the firm maximize profit or minimize loss?

4 unit

explanation:

Q	FC	VC	TC	TR	MC	MR	Profit
0	100	0	100	0			-100
1	100	100	200	150	100	150	-50
2	100	180	280	300	80	150	20
3	100	300	400	450	120	150	50
4	100	440	540	600	140	150	60
5	100	600	700	750	160	150	50
6	100	780	880	900	180	150	20

firm maximizes its profit where MR=MC, here at any quantity MR is not equal to MC so firm will produce the quantity where MR is greater than Mc before MR starts less than MC. so here at quantity 5, MC starts greater than MR . so we will select the quantity before that quantity where MR is greater than MC. so we will select the 4 unit to produce.

What is the firm’s marginal revenue at each positive level of output? Its average revenue?

it will be equal to price. beacuse firm are price taker so they charge only one price for all level of output.

What can you say about the relationship between marginal revenue and marginal cost for output rates below the profit –maximizing (or loss minimizing) rate? For output rates above the profit maximizing (or loss minimizing) rate?

when MR is gereter than MC, firm can ern more profit by producing one more unit of output.

when MR is less than MC, firm can earn more profit by producing one less int of output.