Profit Maximization in Perfectly Competitive Markets | Microeconomics | Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

Group assignment presentation 7 Exercise 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 the firm make? 
In a perfectly competitive market, the firm maximizes profit by
producing where Price = Marginal Cost as long as the price covers the Average Total Cost. 
Here, Price = $100. Looking at the table, the output where Marginal
Cost is closest to $100 without exceeding it is 7 unit . s  At 7 units: o
Total Revenue (TR) = Price × Output = $100 × 7 = $700 o
Total Cost (TC) at 7 units = $600 o
Profit = TR - TC = $700 - $600 = $100
Therefore, the firm would produce 7 units and make a profit of $100.
c. Does the profitable situation in question (b) exist in the long run? Why? 
In the long run, in a perfectly competitive market, economic profits
attract new firms to enter, increasing the supply and driving the price down. 
This process continues until firms earn zero economic profit, where Price = Average Total Cost. 
Since the price of $100 is above the Average Total Cost at 7 units
(which is $85.71), in the long run, new firms would enter, eventually
reducing the price and eliminating this profit. Exercise 2: 1. 2.
Optimal Output Level Q∗Q^*Q∗ for Profit Maximization: 
In a perfectly competitive market, profit maximization occurs where
Price = Marginal Cost (MC) as long as the price is above Average Total Cost (ATC). 
Here, Price = $21. Looking at the table, the output level where MC is
closest to 21 without exceeding it is 4 units (where MC = 21).  At Q=4Q = 4Q=4: o
Total Revenue (TR) = 21×4=8421 \times 4 = 8421×4=84 o Total Cost (TC) = $96 o
Profit = TR - TC = 84−96=−1284 - 96 = -1284−96=−12 (a loss of $12)
Therefore, the optimal output level for profit maximization would
technically be 4 units, but this leads to a loss of $12. 3.
Should the Firm Continue Production? 
Even though the firm is incurring a loss at the profit-maximizing
output, we need to consider whether it covers its Variable . Costs 
At Q=4Q, the Variable Cost is $46, which is covered by the revenue of $84. 
Since the firm is covering its variable costs, it should continue
production in the short run to minimize its losses (which are less than
the total fixed costs if it shuts down). Exercise 3:
1. Total Revenue (TR) and Marginal Revenue (MR) Equations: 
In a perfectly competitive market, the price PPP is constant at 888, so: o
Total Revenue (TR) = P×Q=8QP \times Q = 8QP×Q=8Q o
Marginal Revenue (MR) is the derivative of TR with respect to
QQQ, which in this case is simply MR=8MR = 8MR=8 (since it’s a constant).
2. Equations for MC, VC, AVC, AFC, and ATC: 
Marginal Cost (MC) is the derivative of Total Cost (TC) with respect to Q
3. Optimal Output Level (Q) for Profit Maximization and Maximum Profit:* 
In a perfectly competitive market, profit maximization occurs where MR = MC