Question

Consider the following hourly demand and cost schedule for a firm facing a fixed price (Tπ is Total Profit).

Q	P	Tr	Mr	TFC	TVC	TC	MC	ATC	AVC	T(π)
0	$5.00					$4.00
1							4
2							2
3							1
4							2
5							3
6							4
7							5
8							6
9							7
10							8

                                                                                                                                     

Complete the columns for TR, MR, TFC, TVC, TC, ATC, AVC, and MC, as well as those for (TC), TVC, & TFC. Draw the curves for Demand (Price Vs. Quantity), MR (Marginal Revenue), ATC, AVC, and MC, all in one diagram. Also draw the Total Revenue (TR), Total Cost (TC), TVC, and TFC in a second diagram right below the first one.

1. Determine, in order to maximize profit. How many units this firm should produce and explain.
2. Demonstrate the geometric areas (rectangles) of Total Revenue, Total Cost and Total Profit at the profit-maximizing level and calculate the values of each in the diagram above (and not the one below).
3. Show the Total Revenue, Total Cost and Total Profit at the profit-maximizing level in the diagram below.

I've given all the information that I have.

Answer 1

In the given table

TR = P ×Q

TVC is 0 at 0 level of output hence TFC is equal to total cost at 0 level of production.

AVC = TVC/Q

ATV= TC/Q

TFC remains constant at all the level of production and price also remains constant as given in the question.

A. Profit is maximum when MC = MR .

In the above case producer will produce 7 units to minimize his profit .

B. In the above graph area ABCD represents total profit at profit maximizing level of output .

C.from the above graph we can conclude that profit is maximum at 7 units of output. Highest peak of total profit curve is at 7 units of output which is equal to $10