Cost Structures and Profit Maximization | Microeconomics | Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

Assignment 7
Name : Doan Xuan Nhi Class : E-BBA 14.2 Student code : 11224906 Exercise 1 : a. Complete the table Outp Total Total Total Avera Avera Avera Margin ut fixed varia cost( ge ge ge al cost( ble $) fixed varia total cost($) $) cost($ cost($ ble cost($ ) ) cost($ ) ) 0 200 0 200 0 0 0 1 200 50 250 200 50 250 50 2 200 90 290 100 45 145 40 3 200 120 320 66,67 40 106,67 30 4 200 160 360 50 40 90 40 5 200 220 420 40 44 84 60 6 200 300 500 33,33 50 83,33 80 7 200 400 600 28,57 57,14 85,71 100 8 200 520 720 25 65 90 120 9 200 670 870 22,22 74,44 96,66 150 10 200 900 1100 20 90 110 230
b. . If the price was 100$, what output would the firm produce and
what type of profit (or loss) would the firm make? - MR=P=100$ - To maximize profit : MR=MC ↔ MC = 100$
If the price was 100$, the firm would produce 7 units to maximize profit -
> 0 ↔ this is a positive economic profit. This firm makes good profit.
c. Does the profitable situation in the question b exist in the long – run? Why? -
The profitable situation in the question b doesn’t exits in the
long- run because this good profit will attracts many new comers
who enter the market and the supply increases, the market price
decreases. Therefore, the firm takes new price, decrease their
profit and this process continue happend until the entry of new
comers pushes firm’s profit to zero. Exercise 2 :
1. What are TR, MC, FC, VC, AVC, AFC, ATC ? Q Tota Total Marigin Fixe Variab Avera Avera Avera l reven al cost d le cost ge ge ge cost ue (MC) cost (VC) variab fixed total (TC) (TR) (FC) le cost cost cost (AVC) (AFC) (ATC) 0 50 0 50 1 55 21 5 50 5 5 50 55 2 62 42 7 50 12 6 25 31 3 75 63 13 50 25 8,33 16,67 25 4 96 84 21 50 46 11,5 12,5 24 5 125 105 29 50 75 15 10 25 6 162 126 37 50 112 18,67 8,33 27 7 203 147 41 50 153 21,86 7,14 29 8 248 168 45 50 198 24,75 6,25 31
2. Identify optimal output level (Q * ) that gives the firm profit
maximization? What is the maximum profit? - MR = P = 21$
o To maximize profit, the firm should choose the quantity that has MR = MC ↔ P = MC ↔ MC = 21
So the optimal output level (Q*) is 4 units - The maximum profit is :
3. With the above profit (in the question 2), should the firm continue the production? Why? -
With the above profit in the question 2, the firm should continue the production - Because :
o As we can see : so if the firm continues the production, they can minimize total loss Exercise 3
1. Identify TR and MR equation : -
Cause there is a perfect competition firm so the total revenue equation is : o TR = 8Q ($) -
The marginal revenue equation is : o MR = 8
2. Identify MC, VC, AVC, AFC, ATC equation? -
The marginal cost equation is : o MC - The variable cost equation is o VC = -
The average variable cost equation is o AVC = -
The average fixed cost equation is : o AFC = -
The average total cost equation is o ATC =
3. What is optimal output level (Q* ) that gives the firm profit
maximization? What is the maximum profit ? - To maximize the firm profit : ↔ MC = 8 ↔ 2Q + 2 = 8 ↔ Q = 3
The optimal output level (Q*) is 3 units. The maximum profit is : ↔
4. What is break even price and break even quantity? -
The break even price is P = ATC min ↔ ( Q + 2 + o We have : ↔ ↔ 1 - ↔ Q = 2 ↔ P = ATC = 6 $
The break even price is 6$ and the break even quantity is 2 units
5. If market price decrease to P= 4$, should the firm continue the production? Why?
At Q = 2, the average variable cost is : AVC min = 2 + 2 = 4 ($)
If the market price decrease to P=4$ = AVC min , the firm
shouldn’t continue the production because at this point, the
firm can’t minimize the loss of total cost and have to lost all
the total cost. So this is shut down point.