ECON 1 Study Guide - Cittern, Fixed Cost
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Gulp and Devour | ||||||||
Output | TR | TC | Profit | AC | Price | MR | MC | Marginal |
Profit | ||||||||
1 | 135 | 100 | 35 | 100 | 135 | 135 | 100 | 35 |
2 | 260 | 200 | 60 | 100 | 130 | 125 | 100 | 25 |
3 | 375 | 300 | 75 | 100 | 125 | 115 | 100 | 5 |
4 | 480 | 400 | 80 | 100 | 120 | 105 | 100 | 5 |
5 | 575 | 500 | 75 | 100 | 115 | 95 | 100 | -5 |
6 | 660 | 600 | 60 | 100 | 110 | 85 | 100 | -15 |
7 | 735 | 700 | 35 | 100 | 105 | 75 | 100 | -25 |
8 | 800 | 800 | 0 | 100 | 100 | 65 | 100 | -35 |
Shady Enterprise | ||||||||
Output | TR | TC | Profit | AC | Price | MR | MC | Marginal |
Profit | ||||||||
1 | 160 | 50 | 110 | 50 | 160 | 160 | 50 | 110 |
2 | 300 | 125 | 175 | 62.5 | 150 | 140 | 75 | 65 |
3 | 420 | 220 | 195 | 75 | 140 | 120 | 100 | 20 |
4 | 520 | 350 | 170 | 87.5 | 130 | 100 | 125 | -25 |
5 | 600 | 500 | 100 | 100 | 120 | 80 | 150 | -70 |
6 | 660 | 675 | -15 | 112.5 | 110 | 60 | 175 | -115 |
7 | 700 | 875 | -175 | 125 | 100 | 40 | 200 | -160 |
8 | 720 | 100 | -380 | 137.5 | 90 | 20 | 225 | -205 |
What is the profit-maximizing output for each case? Show that three criteria are equivalent: marginal cost equals marginal revenue, maximum profit, and marginal profit equals zero.
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?
Assume that a firm in a perfectly competitive market can sell its product for $35 (ie price per unit of output). Furthermore, it faces the following costs:
Output (Q) | Total Cost |
0 | 25 |
1 | 50 |
2 | 100 |
3 | 120 |
4 | 155 |
5 | 190 |
6 | 250 |
7 | 390 |
a) Calculate Total revenue (TR), Marginal Cost (MC), Fixed Cost (FC), Variable cost (VC), and Average Cost (AC).
b) What is the profit-maximizing output level?
c) Is this firm is making a profit or loss at the profit-maximizing output level? Explain.
d) Do you think the firm will continue its production in the short run?
e) What will be the long-run price in this market?