Question

Answer the remaining three questions on the basis of the information below.

A profit-maximizing firm in a perfectly competitive market operates in the short run with total fixed costs of $6,500.00 and total variable costs (TVC) as is below. The firm can only produce integer amounts of output (Q)

Q	TVC
0	0.00
1	8,000.00
2	15,000.00
3	20,000.00
4	23,000.00
5	25,000.00
6	29,000.00
7	33,500.00
8	39,000.00
9	46,000.00
10	53,500.00
11	61,200.00
12	72,000.00

_______4. (2.0 pts.) What are firm profits (or losses) when price is $6,000?

                                    Did you show your work for every question?

Answer 1

Solution:

As per the details given in the question it is observed that the total fixed cost is $6,500 which will not get effected by the output produced whereas the Varable cost per unit will change. In the question Total Variable cost is given directly.

Then the formulae for Total profit / (loss) is,

Total profit / (loss) = [Price per unit * Number of units] - Total variable cost - Total fixed cost

The Profit / (Loss) in all the cases mentined in the question can be computed as follows:

a	b	c = a*b	d	e	f = c-d-e
Quantity (Q) (given)	Selling price per unit ($) (given)	Total Sales ($)	Total Variable Cost / TVC (given)	Total Fixed Cost (given)	Total Profit / (Loss)
0	6000	0	0	6500	(6500)
1	6000	6000	8000	6500	(8500)
2	6000	12000	15000	6500	(9500)
3	6000	18000	20000	6500	(8500)
4	6000	24000	23000	6500	(5500)
5	6000	30000	25000	6500	(1500)
6	6000	36000	29000	6500	500
7	6000	42000	33500	6500	2000
8	6000	48000	39000	6500	2500
9	6000	54000	46000	6500	1500
10	6000	60000	53500	6500	0
11	6000	66000	61200	6500	(1700)
12	6000	72000	72000	6500	(6500)

Therfore, the firm can earn maximum profit of $2500 by producing 8 Qs of output by selling at a price $6,000 per Q.

PS: Please use "thumbs up" if you are contented with my solution.