Question

This cost table is related to a competitive firm. TFC TVC Q 0 AVC NA ATC NA MC NA 1 2 3 4 TC 30 50 66 80 90 100 114 131.2 150 190 5 6 7 8 9 OTSHANE Using the table above, answer the following questions. 6. Complete the table above. (1 point) 7. Plot ATC, AVC, and MC in one diagram. (1 point) 8. What is the shutdown price? (1 point) 9. At a price of $18.8. how much should the firm produce to maximize profit? (1 point) 10. At a price of $18.8, calculate its profit. (1 point) Page 213 @ + 80 COO Dll >> 118) FO # $ % 5 6 & 7 00 * NT E R T Y 0 P F G H j к L

Answer 1

6.Ans:

Q	TFC	TVC	TC	AVC	ATC	MC
0	30	0	30	NA	NA	NA
1	30	20	50	20	50	20
2	30	36	66	18	33	16
3	30	50	80	16.67	26.67	14
4	30	60	90	15	22.5	10
5	30	70	100	14	20	10
6	30	84	114	14	19	14
7	30	101.2	131.2	14.46	18.74	17.2
8	30	120	150	15	18.75	18.8
9	30	160	190	17.78	21.11	40

Explanation:

TC = TFC + TVC

AVC = TVC / Q

ATC = TC / Q

MC = Change in TC / Change in Q

Fixed costs are available even at zero level of output and remain constant throughout the subsequent level of production.

7.Ans:

55 50 45 40 35 30 ATC, AVC & MC AVC 25 ATC 20 MC un 10 5 0 0 1 2 3 10 4 5 6 7 8 9 QUANTITY

8.Ans: The shut down price is $14

Explanation:

Under perfect competiton , the shut down point occurs where price equals to the average variable cost ( P = AVC). This is at the minimum point on AVC curve.

9.Ans: The firm should produce 8 units to maximize profits.

Explanation:

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

10.Ans: At a price of $18.8 , its profit is $0.40

Explanation:

Profit = Total Revenue - Total cost

Q	TFC	TVC	TC	AVC	ATC	MC	TR	Profit/Loss
0	30	0	30				0	-30.00
1	30	20	50	20	50	20	18.80	-31.20
2	30	36	66	18	33	16	37.60	-28.40
3	30	50	80	16.67	26.67	14	56.40	-23.60
4	30	60	90	15	22.5	10	75.20	-14.80
5	30	70	100	14	20	10	94.00	-6.00
6	30	84	114	14	19	14	112.80	-1.20
7	30	101.2	131.2	14.46	18.74	17.2	131.60	0.40
8	30	120	150	15	18.75	18.8	150.40	0.40
9	30	160	190	17.78	21.11	40	169.20	-20.80