ECON 2P23 Chapter Notes - Chapter 3: Marginal Revenue, Demand Curve, Marginal Cost
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PROFIT MAXIMIZATION
Reminders:
Q: Quantity, TC: Total Costs, VC: Variable Costs, MC: Marginal Costs, MR: Marginal Revenue, TR: Total Revenue
1. Suppose the market for DVD movies is perfectly competitive. The industry price for the movies is $24, and a typical firm has the following total cost data:
Q | TC | VC | MC | MR | TR | Net Profit |
0 | 10 | |||||
1 | 33 | |||||
2 | 53 | |||||
3 | 70 | |||||
4 | 90 | |||||
5 | 114 | |||||
6 | 143 |
a. Calculate the TR, MR, and MC for each level of output.
b. What condition must be met for the firm to maximize profits? What is the profit maximizing level of output and price for this firm? How much profit would be made?
2. Now suppose that some firms have been able to differentiate their DVDs, and the market has become monopolistically competitive. A typical firm now has the following demand schedule and total cost data:
Q | P | TC | VC | MC | MR | TR | Net Profit |
0 | 40 | 8 | |||||
1 | 35 | 20 | |||||
2 | 30 | 28 | |||||
3 | 25 | 40 | |||||
4 | 20 | 56 | |||||
5 | 15 | 76 | |||||
6 | 10 | 100 |
a. Calculate the TR, MR, and MC for each level of output.
b. What condition must be met for the firm to maximize profits? What is the profit maximizing level of output and price for this firm? How much profit would be made?