A perfectly competitive firm faces the short-run cost schedule shown in Table 1. 3 4 Output Total Cost 2 5 6 7 8 12 20 26 32 40 52 68 93 122 Table 1 A) Calculate average total cost (ATC=TC/Q), marginal cost (MC=ATC/AQ) and marginal revenue (MR=ATR/AQ) for each level of output. The price per unit of output is £16. B) Plot ATC, MC and MR on a graph and mark the profit-maximising output. At what output is profit maximised? C) How much profitloss is made at the optimum level of output? D) Assume market price declines to £9 per unit. If the firm's average variable cost is £9.5, should the firm shut down in the short run? In the long run? Explain. E) If the firm is typical of other firms, what price will it charge in the long run? Explain.
A perfectly competitive firm faces the short-run cost schedule shown in Table 1. 3 4 Output Total Cost 2 5 6 7 8 12 20 26 32 40 52 68 93 122 Table 1 A) Calculate average total cost (ATC=TC/Q), marginal cost (MC=ATC/AQ) and marginal revenue (MR=ATR/AQ) for each level of output. The price per unit of output is £16. B) Plot ATC, MC and MR on a graph and mark the profit-maximising output. At what output is profit maximised? C) How much profitloss is made at the optimum level of output? D) Assume market price declines to £9 per unit. If the firm's average variable cost is £9.5, should the firm shut down in the short run? In the long run? Explain. E) If the firm is typical of other firms, what price will it charge in the long run? Explain.
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.4P
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