Question

Quantity	Total Cost	Marginal Cost	Average Total Cost	Average Variable Cost
0	1,000	-	-	-
10	1,600	60	160	60
20	2,100	50	105	55
30	2,500	40	83.33	50
40	2,800	30	70	45
50	3,200	40	64	44
60	3,700	50	61.67	45
70	4,300	60	61.43	47.14
80	5,000	70	62.50	50
90	5,800	80	62.44	53.33

Consider the above costs of a purely competitive firm.

Calculate this firm's profit maximizing quantity and profit (or loss) when the market price of the computer software equals $72.

  

quantity = 80; profit = $760

   

quantity = 80; profit = $430

   

quantity = 70; profit = $40

   

quantity = 70; profit = -$170

   

quantity = 50; profit = -$100

   

quantity = 0; profit = -$1,000

   

quantity = 60; profit = $20

   

quantity = 60; profit = -$160

B:

Calculate this firm's profit maximizing quantity and profit (or loss) when the market price of the computer software equals $56.

  

quantity = 60; profit = $220

   

quantity = 50; profit = -$1,050

   

quantity = 30; profit = -$1,210

   

quantity = 70; profit = $40

   

quantity = 60; profit = -$340

   

quantity = 80; profit = $220

   

quantity = 80; profit = -$40

   

quantity = 0; profit = -$1,000

Answer 1

In case of Perfect Competition the firm maximizes profit by equating price to MC.

1. Here price is $72 and at a output of 80 MC = 70

Thus, the firm should produce 80 units.

Profit = $72*80 - $ 5000 = $ 5760 - 5000 = $ 760

First one is correct

Output = 80, profit = $ 760

2. When price is $ 56

Then quantity sold will be 60 units

Profit = $56*60 - 3700 = $ 3360 - 3700 = - $ 340

Quantity = 60, profit = - $ 340

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