1 Answer the questions below using the following information

1.     Answer the questions below using the following information on a firm:

Output (Quantity)

Total Cost

0

$50

1

60

2

80

3

110

4

150

5

200

6

260

7

330

8

410

a.     What is average total cost at Q=6?

b.     What is marginal cost at Q =6?

c.     Is this firm operating under increasing or diminishing returns at Q=6? Why?

d.     Say this firm is a perfect competitor. If the market price for its product is $ 50, at what output level will it produce at (to maximize profits)?

e.     Say this firm is a profit-maximizing monopolist. If the firm is maximizing profit where marginal revenue equals $40, at what output level will this firm be producing?

Output (Quantity)	Total Cost
0	$50
1	60
2	80
3	110
4	150
5	200
6	260
7	330
8	410

Solution

Output (Quantity)

Total Cost

ATC

MC

TR at P=$40

Profit at Monopoly competition

0

50

0

-50

1

60

60.00

10

40

-20

2

80

40.00

20

80

0

3

110

36.67

30

120

10

4

150

37.50

40

160

10

5

200

40.00

50

200

0

6

260

43.33

60

240

-20

7

330

47.14

70

280

-50

8

410

51.25

80

320

-90

a. From the above table, at Q=6, ATC = 43.33

b. From the above table, at Q=6, MC = 60

c. As MC is increasing it is operating at diminishing returns

d. Perfect competition, MC=MR = 50, produces Q = 5

e. Profit-maximisation is at where Q= 4

Output (Quantity)	Total Cost	ATC	MC	TR at P=$40	Profit at Monopoly competition
0	50			0	-50
1	60	60.00	10	40	-20
2	80	40.00	20	80	0
3	110	36.67	30	120	10
4	150	37.50	40	160	10
5	200	40.00	50	200	0
6	260	43.33	60	240	-20
7	330	47.14	70	280	-50
8	410	51.25	80	320	-90