Microeconomics HW 7: Profit Maximization & Cost Analysis | Microeconomics | Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

Microeconomic homework 7 Exe Ex r e c r i c s i e s e 1 1 a, Complete the table
b, If the price was 100$, what output would the firm produce and what type of profit (or loss) would Output Total fixed Total Total cost Average Average Average Marginal cost variable (dollars) fixed cost variable total cost cost (dollars) cost (dollars) cost (dollars) (dollars) (dollars) (dollars) 0 200 0 200 - - - - 1 200 50 250 200 50 250 50 2 200 90 290 100 45 145 40 3 200 120 320 66.66 40 106.66 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 the firm make?
If the price was 100 dollars, the producer should manufacture 7 output to maximize profit. Because at
that level of production, marginal cost equal price. In that situation, the firm makes economic profit.
c, Does the profitable situation in the question b exist in the long – run? Why?
The profitable situation in the question b is not exit in the long-run because in a perfectl y compettitive
market, there is only normal profit to each firm in the long-run. Exe Ex r e c r i c s i e s e 2 2
1. What are TR, MC, FC, VC, AVC, AFC, ATC ?
The required number is in the table below: Quantity Price Total revenue
Total cost Marginal cost Fixed cost Variable cost Average fixed cost Average variable cost Average total cost 0 21 0 50 50 50 0 #DIV/0! #DIV/0! #DIV/0! 1 21 21 55 5 50 5 50.00 5.00 55 2 21 42 62 7 50 12 25.00 6.00 31 3 21 63 75 13 50 25 16.67 8.33 25 4 21 84 96 21 50 46 12.50 11.50 24 5 21 105 125 29 50 75 10.00 15.00 25 6 21 126 162 37 50 112 8.33 18.67 27 7 21 147 203 41 50 153 7.14 21.86 29 8 21 168 248 45 50 198 6.25 24.75 31
2. Identify optimal output level (Q*) that gives the firm profit maximization? What is the maximum profit ?
The optimal ouput level that gives the firm profit maximization is 4. Th
e maximum profit in this case is minimum total loss.
3. With the above profit (in the question 2), should the firm continue the production? Why?
With the profit above, the firm should not continue to produce because it causes more loss. Exe Ex r e c r i c s i e s e 3 3
1. The total revenue equation is: 𝑇𝑅 = 8𝑄
The marginal revenue equation is: 𝑀𝑅 = 8
2. The MC, VC, AVC, AFC, ATC equation is:
𝑀𝐶 = 𝑇𝐶′ = 2𝑄 + 2 𝑉𝐶 = 𝑄2 + 2𝑄 𝑉𝐶 𝐴𝑉𝐶 = = 𝑄 + 2 𝑄 𝐹𝐶 4 𝐴𝐹𝐶 = = 𝑄 𝑄 𝑇𝐶 𝑄2 + 2𝑄 + 4 𝐴𝑇𝐶 = = 𝑄 𝑄
3. The firm earn maximum profit when 𝑀𝐶 = 𝑀𝑃 = 𝑃 so 2𝑄 + 2 = 8.
Solve the equation above we have the optimal output level is 3. At that level, the maximum profit is: 𝑇𝑃
𝑚𝑎𝑥 = 𝑇𝑅 − 𝑇𝐶 = 8 × 3 − (32 + 2 × 3 + 4) = 5
4. The break even occur when 𝑃 = 𝐴𝑇𝐶𝑚𝑖𝑛 = 6 and the break even quantity equation i : s Qb = 4 6−(Qb+2)
Solve the equation above, we have Qb = 2
5. AVCmin = 2 so when the price decline to 4$, the firm should continue to produce till price equal
AVCmin to minimize total loss.