Question

In: Economics

Complete the following cost and revenue schedule. Rate of Output Total Cost Marginal Cost Average Fixed...

Complete the following cost and revenue schedule.

Rate of Output	Total Cost	Marginal Cost	Average Fixed Cost	Average Variable Cost	Average Total Cost	Price	Marginal Revenue
0	200					121
1	225					121
2	260					121
3	381					121
4	580					121
5	800					121

Use the completed cost and revenue schedule to answer the following questions.

a. Use the optimization rule to maximize profit. What rate of output maximizes profit?

b. What is the actual amount of profit at the profit-maximizing level of output you found in (1a)?

Expert Solution

Answer:

Rate of Output	Total Cost	Marginal Cost	Average Fixed Cost	Average Variable Cost	Average Total Cost	Price	Marginal Revenue
0	200	-----	0	0	0	121	----
1	225	25	200	25	225	121	121
2	260	35	100	30	130	121	121
3	381	121	66.67	60.33	127	121	121
4	580	199	50	95	145	121	121
5	800	220	40	120	160	121	121

Calculations:

Rate of Output	Total Cost	Marginal Cost	Fixed cost	Variable cost	Average Fixed Cost	Average Variable Cost	Average Total Cost	Price	Total revenue	Marginal Revenue
0	200	-----	200	0	0	0	0	121	121*0=0	----
1	225	225-200=25	200	225-200=25	200/1=200	25	200+25=225	121	121*1=121	121
2	260	260-225=35	200	260-200=60	200/2=100	60/2=30	100+30=130	121	121*2=242	121
3	381	381-260=121	200	381-200=181	200/3=66.67	181/3=60.33	66.67+60.33=127	121	121*3=363	121
4	580	580-381=199	200	580-200=380	200/4=50	380/4=95	50+95=145	121	121*4=484	121
5	800	800-580=220	200	800-200=600	200/5=40	600/5=120	40+120=160	121	121*5=605	121

Formulas used:

(Fixed cost is the cost incurred at zero unit of output. It does not vary with the increase in output. Remains constant)

1. MC = TCn – TCn-1

2. VC = TC – FC

3. AFC = FC/Q

4. AVC = VC/Q

5. AC = AFC + AVC

6. TR = P * Q

7. MR = P (since price is constant in perfect competition, AR = MR = P)

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a) Profit maximization rule:

A firm can maximize its profit when MC = MR

Marginal cost is equal to marginal revenue at 3^rd unit of output.

(MC = MR = 121)

At 3^rd unit of output, profit is maximum.

b) Profit = Total revenue – Total cost

Profit = 363-381

Profit = (-)18

Rahul Sunny answered 1 year ago

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