In: Economics
Widgets Produced | Fixed Costs | Variable Costs | Total Costs | Average Variable Cost | Average Total Cost | Marginal Cost | Price = MR | Profits |
---|---|---|---|---|---|---|---|---|
0 | 25 | 0 | 10 | |||||
1 | 25 | 8 | 10 | |||||
2 | 25 | 15 | 10 | |||||
3 | 25 | 23 | 10 | |||||
4 | 25 | 32 | 10 | |||||
5 | 25 | 42 | 10 | |||||
6 | 25 | 53 | 10 | |||||
7 | 25 | 65 | 10 | |||||
8 | 25 | 78 | 10 | |||||
9 | 25 | 92 | 10 |
The profit maximizing rule for the competitive firm states that the firm sets P=MC=MR for maximizing its profits.
As the competitive firm is a price taker, it cannot set its own price and therefore must set the market price.
The profit maximizing (or loss minimizing) level of output in the short run by setting P=MC=MR = 5
The profit maximizing level of output in the long run is = Minimum ATC = or = 0 as the firm is unable to recover its costs
The shut-down prices in the short run is = Minimum AVC = 10 and in the long run is = Minimum ATC = 12.86
The firm’s supply curve is the portion of the MC curve which lies above the minimum AVC as the firm will not produce any output when the price is below the minimum AVC
Widgets Produced | Fixed Costs | Variable Costs | Total Costs | Average Variable Cost | Average Total Cost | Marginal Cost | Price = MR | Profits | TR |
0 | 25 | 0 | 25 | 10 | -25 | 0 | |||
1 | 25 | 8 | 33 | 8 | 33 | 8 | 10 | -23 | 10 |
2 | 25 | 15 | 40 | 7.5 | 20 | 7 | 10 | -20 | 20 |
3 | 25 | 23 | 48 | 7.67 | 16 | 8 | 10 | -18 | 30 |
4 | 25 | 32 | 57 | 8 | 14.25 | 9 | 10 | -17 | 40 |
5 | 25 | 42 | 67 | 8.4 | 13.4 | 10 | 10 | -17 | 50 |
6 | 25 | 53 | 78 | 8.83 | 13 | 11 | 10 | -18 | 60 |
7 | 25 | 65 | 90 | 9.26 | 12.86 | 12 | 10 | -20 | 70 |
8 | 25 | 78 | 103 | 9.75 | 12.88 | 13 | 10 | -23 | 80 |
9 | 25 | 92 | 117 | 10.22 | 13 | 14 | 10 | -27 | 90 |