Question

In: Economics

1. Consider the following table of costs facing a firm in a competitive market:


1. Consider the following table of costs facing a firm in a competitive market:

Quantity of OutputTotal Costs


  
05



111



217



321



426



533



643



755



a. If the price in the market is $7 per unit, how much will the firm choose to produce? Use a comparison of marginal revenue and marginal cost to determine the answer. What will the profit (or loss) be in this scenario?

b.Sketch a graph of the marginal revenue and marginal cost curves, and indicate the profit-maximizing level of quantity produced on your graph.

Solutions

Expert Solution

a) Marginal cost = Change in Total cost / Change in Quantity

Marginal revenue = Change in Total revenue / Change in Quantity

Profit maximising price is $ 7 and quantity is 5. Profit = TR - TC = 35 - 33 = $ 2.

b)

Rahul Sunny answered 3 years ago
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