ECON 1100 Lecture Notes - Lecture 9: Marginal Cost, Competitive Equilibrium
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The following table represents short run cost-revenue information (in dollars) for a firm in a competitive market.
Q |
P |
TR |
MR |
MC |
TC |
Total Profit |
0 |
N/A |
N/A |
600 |
|||
1 |
700 |
|||||
2 |
80 |
|||||
3 |
50 |
|||||
4 |
860 |
|||||
5 |
20 |
|||||
6 |
1000 |
|||||
7 |
1040 |
|||||
8 |
60 |
|||||
9 |
||||||
10 |
(a) Fill in all the blanks above using the following information: The Market Price is $100 per unit of output, the VC of producing 9 units of output is $570, and the ATC of producing 10 units of output is $270
(b) Where does diminishing returns start? Explain your answer.
(c) What is the Fixed Costs for this firm? Explain your answer.
(d) In the Short Run, if this firm would go into production, determine the profit maximizing (or loss minimizing) level of output and profit amount.
(e) In the Short Run, if this firm would instead shutdown without going into production, determine its production amount and profit amount.
(f) Please determine the best course of action for this firm in the Short Run.
(g) Based on the data above, in the Long Run, explain what this firm should do.
Deriving the short-run supply curve.
Consider the competitive market for halogen lamps. The following graph shows the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves for a typical firm in the industry. For each price in the following table, use the graph to determine the number of lamps this firm would produce in order to maximize its profit. Assume that when the price is exactly equal to the average variable cost, the firm is indifferent between producing zero lamps and the profit-maximizing quantity. Also, indicate whether the firm will produce, shut down, or be indifferent between the two in the short run. Lastly, determine whether it will make a profit, suffer a loss, or break even at each price.
Price (dollars per lamp) |
|
Produce or shutdown
|
Profit or loss
|
15 |
|
|
|
20 |
|
|
|
25 |
|
|
|
55 |
|
|
|
70 |
|
|
|
85 |
|
|
|