Question

Q	TC	FC	TVC	MC	TR	AFC	AVC	ATC
0	45	45	-	0	-	-	-	-
1	65	45	20	20	30	45	20	65
2	80	45	35	15	60	22.5	17.5	40
3	90	45	45	10	90	15	15	30
4	105	45	60	15	120	11.25	15	26.25
5	125	45	80	20	150	9	16	25
6	150	45	105	25	180	7.5	17.5	25
7	180	45	135	30	210	6.4	19.28	25.71
8	215	45	170	25	240	5.6	21.25	26.97
9	255	45	210	40	270	5	23.33	28.33

e.   Complete the following schedule:

                                   Q            AFC        AVC         ATC

                             (pounds)    ($/lb)      ($/lb)          ($/lb)         

                                  0              ----         ----             ----

                                  1

                                  2

                                  3

                                  4

                                  5

                                  6

                                  7

                                  8

                                  9

  What would the profit maximizing quantity of output be if the price of widgets were $35/lb? What if the price were $40/lb?

Answer 1

Profit-maximizing output for a perfectly competitive firm in the short run is P=MC. The firm will produce output at which P=MC. For a competitive firm, MR=P. If P > MC, then the firm will increase production till P=MC. If MC is less than P, it means that the firm will reduce production till P equals MC.

If price is $35/lb, the firm will produce 7 units as P> MC, which is $30.

If price is $40/lb, the firm will produce 9 units as P= MC, which is $40.