Assignment 7 Analysis and Profit Maximization Strategies | Microeconomics | Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

MICROECONOMICS ASSIGNMENT 7 Full name: Nguyen Ha Phuong Student ID: 11225244 Class: E-BBA 14.1 Exercise 1 a. Q 0 1 2 3 4 5 6 7 8 9 10 FC 200 200 200 200 200 200 200 200 200 200 200 VC 0 50 90 120 160 220 300 400 520 670 900 TC
= VC+FC 200 250 290 320 360 420 500 600 720 870 1100 AFC = 𝑭𝑪
200 100 66.67 50 40 33.33 28.57 25 22.22 20 𝑸 AVC = 𝑽𝑪 50 45 40 40 44 50 57.14 65 74.44 90 𝑸 ATC = 𝑻𝑪
250 145 106.67 90 84 83.33 85.71 90 96.67 110 𝑸
MC = ∆𝑻𝑪 50 40 30 40 60 80 100 120 150 230 ∆𝑸
b. If the price was $100: - MC = P = $100 → Q* = 7
→ The firm should produce 7 levels of output to obtain profit maximization.
- P > ATCmin (= $83.33) → π = Q*×(P – ATC*) = 7×(100 – 85.71) ≈ 100 ($)
→ The firm would make positive economic profit. c.
- The positive economic profit cannot exist in the long-run.
- Because: When the firm earn short-run positive economic profit → New firms
will enter → Industry supply curve shifts to the right → Price will fall until typical
firm earns normal profit (economic profit = 0): P = MC = ATCmin (= $83.33)
→ Firm gets long-run equilibrium. Exercise 2 1. P = $21 Q 0 1 2 3 4 5 6 7 8 TC 50 55 62 75 96 125 162 203 248 TR = P× 𝑸 0 21 42 63 84 105 126 147 168
MC = ∆𝐓𝐂 5 7 13 21 29 37 41 45 ∆𝐐 FC = TC(0) 50 50 50 50 50 50 50 50 50 VC = TC 0 5 12 25 46 75 112 153 198 – FC AVC = 𝐕𝐂 5 6 8.33 11.5 15 18.67 21.86 24.75 𝐐 AFC = 𝐅𝐂 50 25 16.67 12.5 10 8.33 7.14 6.25 𝐐 ATC = 𝐓𝐂 55 31 25 24 25 27 29 31 𝐐 2. Profit maximization
- P = MC = $21 → Q* = 4
→ The firm should produce 4 levels of output to obtain profit maximization.
- The maximum profit: π = Q*×(P – ATC*) = 4×(21 – 24) = -12 ($)
→ The firm would make negative economic profit. 3.
- AVCmin (= $5) < P < ATCmin (= $24)
→ With the above negative economic profit, the firm should continue the
production to minimize the total loss.
Exercise 3 P = $8 TC = Q2 + 2Q + 4 ($) 1. TR and MR equation TR = P×Q = 8Q ($) MR = P = 8 ($)
2. MC, VC, AVC, AFC, ATC equation - MC = (TC)’ = 2Q + 2 - FC = TC 2
(0) = 4 → VC = TC – FC = Q + 2Q - AVC = VC = Q + 2 Q - AFC = FC = 4 Q Q - ATC = TC = Q + 2 + 4 Q Q 3. Profit maximization
- P = MC = $8 ↔ 2Q + 2 = 8 → Q* = 3
→ The firm should produce 3 levels of output to obtain profit maximization. - The maximum profit: 19
π = Q*×(P – ATC(3)) = 3×(8 – ) = 5 ($) 3
→ The firm would make positive economic profit.
4. Break even quantity and break even price - ATCmin = MC = P
(ATC)’ = 1 – 4/Q2 = 0 → Q = 2 → Break even quantity: Q = 2 → Break even price: P = $6
5. If market price decrease to P = $4 < ATCmin → The firm should continue the
production to minimize the total loss.