Question

Assume the market for watermelons is perfectly competitive. AAA Watermelon Company has fixed costs of $30, and total variable costs at $10 for one truckload of watermelons, $25 for two truckloads of watermelons, $45 for the three truckloads of watermelons, $70 for four truckloads of watermelons, $100 for five truckloads of watermelons, and $135 for six truckloads of watermelons.

Set out in a table, total cost, average cost, marginal cost for each output level (one to six units) for AAA Watermelon Company.

If the market price for a truck load of watermelons is $25, in one diagram sketch the demand curve for AAA Watermelon Company, its average cost curve, its marginal revenue curve, and its marginal cost curve.

What is the profit-maximizing quantity of output for AAA Watermelon Company? Is the market in long-run equilibrium? Why or why not?

Answer 1

1.

water melon	TFC	TVC	TC= TVC+TFC	MC= TCn-TCn-1	price	TR= P*Q	MR= TRn- TRn-1	AC= TC/ Q
1	30	10	40	40	25	25	25	40
2	30	25	55	15	25	50	25	27.5
3	30	45	75	20	25	75	25	25
4	30	70	100	25	25	100	25	25
5	30	100	130	30	25	125	25	26
6	30	135	165	35	25	150	25	27.5
	profit maximizing output level is 4 unit of watermelon due MR= P = AR= MC

2.