Question

12:47 X Assign 3 on PC.pdf in what is the prem ier

Answer 1

1.

Q	P	TR=(P)(Q)	TFC	TVC	TC= TFC+TVC	MR=(change in TR)	MC= (Change in TC)
0	21	0	35	0	35	-	-
1	21	21	35	6	41	21	6
2	21	42	35	11	46	21	5
3	21	63	35	15	50	21	4
4	21	84	35	20	55	21	5
5	21	105	35	26	61	21	6
6	21	126	35	34	69	21	8
7	21	147	35	45	80	21	11
8	21	168	35	60	95	21	15
9	21	189	35	80	115	21	20
10	21	210	35	106	141	21	26

1. Profit maximizing condition under perfectly competitive market is P=MC.

Therefore, the profit maximizing quantity = 9 units because when Q=9 ,P>MC and when Q=10 ,P<MC ,so profit maximizing quantity = 9 units.

Profit maximizing price = $21

Profit = TR-TC = $(189-115)=$74

2. If P=$9

Then , profit maximizing quantity , Q=6 units because for Q=6 , P>MC and for Q=7 units ,P<MC , so profit maximizing quantity = 6 units.

Profit maximizing price = $9

Profit = TR-TC = (P)(Q)-TC = (9)(6)-69 = -$15 (i.e loss)

At Q=6 units , ATC= 69/6=$11.5 and AVC = 34/6 =5.67

Because P<ATC but P>AVC ,although business is earning losses but  the business should continue to produce in the short run because P>AVC.

3. If P=$4

Then, profit maximizing quantity , Q=3 units because for Q=3 ,P=MC.

Profit maximizing price = $4

Profit = TR-TC = (P)(Q)-TC = (4)(3)-50 = -$38 (i.e loss)

At Q=3 units , ATC= 50/3=$16.67 and AVC = 15/3 =$5

Because P<ATC and also P<AVC ,So business should not continue to produce in the short run and also shut down.