Question

1)

ChemCo is a price-taker able to receive $10 for each bottle of vitamins they sell. At the profit maximizing level of production their AVC = $5 and AFC = $3. Given the following points on their MC curve, what is their maximum possible profit?

Quantity	0	100	200	300	400	500	600
Marginal Cost	n/a	$8	$4	$6	$8	$10	$15

        

Group of answer choices

a No profit

b $4000

c $5000

d $1000

e $500

2)

Assume a price-taking firm faces the following marginal costs:

Quantity	0	1	2	3	4	5	6
Marginal Cost	n/a	4	3	5	6	8	10

         

If the market price is $8 and this firm has no fixed costs, how much profit will it make?

Group of answer choices

a profit = 64

b profit = 14

c profit = 10

d profit = 40

Answer 1

1. Ans: d) $1000

Explanation:

Under perfect competition , the profit maximization condition is where price equals marginal cost ( P = MC).

So , at the profit maximizing level ;

Output ( Q ) = 500

Total Revenue = Price * Quantity = $10 * 500 = $5000

ATC = AFC + AVC = $3 + $5 = $8

Total cost = ATC * Q = $8 * 500 = $4000

Profit = Total Revenue - Total cost = $5000 - $4000 = $1000

Quantity	Marginal Cost
0	n/a
100	8
200	4
300	6
400	8
500	10
600	15

2.Ans: b) profit = 14

Explanation:

Under perfect competition , the profit maximization condition is where price equals marginal cost ( P = MC).

So , at the profit maximizing level of output is 5.

Marginal cost = Change in total cost / Change in Quantity

Quantity	Marginal Cost	TC	TR	Profit / Loss
0	n/a	0	0	0
1	4	4	8	4
2	3	7	16	9
3	5	12	24	12
4	6	18	32	14
5	8	26	40	14
6	10	36	48	12