A firm operating in competitive environment faces the following price (P),quantity (Q), total fixed cost (TFC) and total variable cost (TVC) schedules respectively:
A. Calculate total revenue (TR), marginal revenue (MR), total cost (TC),marginal cost (MC) and profit (π) for each level of output (Q).
Solution:-
Q P TFC TVC TR MR TC MC π
400 2.5 150 750 1000 — 900 — 100
500 2.25 150 830 1125 1.25 980 0.8 145
600 2 150 905 1200 0.75 1055 0.75 145
700 1.75 150 995 1225 0.25 1145 0.9 80
B. Find the optimal level of output and price which maximizes firm’s profit.
Answer:-
As we know that profit is maximized at the point where MC = MR. The optimal level of Output (Q) and Price (P) at which maximizes firm’s profit is 600 and 2.
A. Calculate total revenue (TR), marginal revenue (MR), total cost (TC),marginal cost (MC) and profit (π) for each level of output (Q).
Solution:-
Q P TFC TVC TR MR TC MC π
400 2.5 150 750 1000 — 900 — 100
500 2.25 150 830 1125 1.25 980 0.8 145
600 2 150 905 1200 0.75 1055 0.75 145
700 1.75 150 995 1225 0.25 1145 0.9 80
B. Find the optimal level of output and price which maximizes firm’s profit.
Answer:-
As we know that profit is maximized at the point where MC = MR. The optimal level of Output (Q) and Price (P) at which maximizes firm’s profit is 600 and 2.
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