Question

The table below provides revenue and cost information for KB & Children Company Ltd, a perfectly competitive firm that produces leather shoes.

Output	Total Revenue	Total Variable Cost	Total Costs
1000	$1,000	$1,500	$2,000
2000		$2,000
3000	$3,000	$2,600
4000		$3,900
5000		$5,000

1. Complete the above table.
2. What is the firm’s total cost of producing 5000 pairs of shoes?
3. What is the average revenue of the firm? Is this amount equal to the firm’s marginal revenue? Explain.
4. At what output level and price will the firm maximize its economic profits?
5. Using the information provided by the above table, draw a diagram showing the firm making short run economic profits.

Answer 1

Answers to Part A-D.

Output	Total Revenue	MR	AR	Total Variable Cost	Total Fixed Costs	Total Costs	MC
1000	1000	1	1	1500	500	2000	1.5
2000	2000	1	1	2000	500	2500	0.5
3000	3000	1	1	2600	500	3100	0.6
4000	4000	1	1	3900	500	4400	1.3
5000	5000	1	1	5000	500	5500	1.1

Total cost of producing 5000 pairs is $5500

Average revenue equals price. so AR = 1, Yes MR equals AR at all levels. This is perfectly competitive market.

Loss = $100,)(TR-TC) = (3000-3100) Q* = 3000 units and P=$1.

AR = TR/Q, MR = Change in TR/Change in Q

TR = P*Q

MC = Change in TC/Change in Q

TC=TFC+TVC

Cost and Revenue MC ATC Profits AVC Short Run Economic Profits Output In the above case the equilibrium is determined at P-MC. The firm's costs are less than the price determined by the cost and price curves. The profits are shaded in green.