Question

5. Consider total cost and total revenue given in the following table: 

a. Calculate profit for each quantity. How much should the firm produce to maximize profit? 

b. Calculate marginal revenue and marginal cost for each quantity. Graph them. (Hint: Put the points between whole numbers. For example, the marginal cost between 2 and 3 should be graphed at 2/½.) 

c. At what quantity do the curves in part b cross? How does this relate to your answer to part a.? 

d. Can you tell whether this firm is in a competitive industry? 

e. Is the industry in long-run equilibrium?

Answer 1

Q	TC	TR	MC	MR	PROFIT
0	24	0			-24
0.5			3	24
1	27	24			-3
1.5			3	24
2	30	48			18
2.5			3	24
3	33	72			39
3.5			6	24
4	39	96			57
4.5			21	24
5	60	120			60
5.5			27	24
6	87	144			57
6.5			32	24
7	119	168			49

a) Profit = TR-TC

The firm will set MC=MR for profit maximization and should produce 5 units to maximize profits

b) MR = change in TR/change in Q

MC = change in TC/change in Q

c) They intersect each other at Q=5 units as found out in part a

d) This firm is in a competitive industry as the MR is constant

e) No, because in the long run the profits are zero whereas this industry is having positive economic profits.