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Assignment
Micro 2010-003
Spring 2015
Average Average
Total
Total
Total
Average
Marginal Market Price
Total
Variable
Total
Total
Output/h Fixed
Variable
Fixed Cost
Cost
Perfect
Cost (TC)
Cost
Cost
Revenue
r
Cost (TFC) Cost (TVC)
(AFC)
(MC)
Competition
(AVC)
(ATC)
0
1
2
3
4
5
6
7
8
9
10
11
$10
$10
$10
$10
$10
$10
$10
$10
$10
$10
$10
$10
0
7
10
12
13
15
18
22
27
33
40
48
$10
$17
$20
$22
$23
$25
$28
$32
$37
$43
$50
$58
0
10
5
3
3
2
2
1
1
1
1
1
0
7
5
4
3
3
3
3
3
4
4
4
0
17.00
10.00
7.33
5.75
5.00
4.67
4.57
4.63
4.78
5.00
5.27
~
7
3
2
1
2
3
4
5
6
7
8
$5
$5
$5
$5
$5
$5
$5
$5
$5
$5
$5
$5
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
$55
Total
Profit
Marginal
Revenue
(MR)
($10)
($12)
($10)
($7)
($3)
$0
$2
$3
$3
$2
$0
($3)
~
5
5
5
5
5
5
5
5
5
5
5
Maximum Profit
at Profit
Maximizing Output
Marginal Cost=
Marginal Revenue
1. In the perfectly competitive market situation above the profit maximizing production level is at 8 units. At this producation level the
marginal cost equals the marginal revenue. This is shown by the marginal cost of $5 for the 8th unit and a marginal revenue of $5 for the
8th unit. Producting at a level of 8 is the profit maximizing level because the cost of production the 8th unit is equal to the return you get
producing it.
2. If the price level of the perfectly competitive market were to decrease to a price level of $4.25 the production level would decrease to 7
which would be the loss minimizing level of production. This is due to a marginal cost $4.57 and the marginal revenue of $4.25. At a level of
7 units the marginal cost of minimized.
3. The firm could continue to operate at a price level of 7 if it was a temporary price decrease and the price would increase after some
point in time. The firm should not continue to operation if the price cut is going to be for the long run because the marginal cost is greater
than the marginal revenue.
$70
14
$60
12
$50
Dollar Cost
Production Costs
16
10
8
6
$40
$30
$20
$10
$0
0
1
5
6
Output
10
11
12
6
7
Output
10
11
12
10
11
Profit Maximaization
Total Revenue
$70
18.00
$60
16.00
$50
$40
$30
$20
$10
14.00
12.00
10.00
8.00
6.00
4.00
2.00
$0
1
Output
10
11
12
0.00
1
6
7
Output
Price Per
Total
Total Cost
Total
Unit
Revenue
(TC)
Profit (TP)
(Demand)
(TR)
0
1
2
3
4
5
6
7
8
9
10
11
12
$8.00
$7.80
$7.60
$7.40
$7.20
$7.00
$6.80
$6.60
$6.40
$6.20
$6.00
$5.80
$5.60
0.00
7.80
15.20
22.20
28.80
35.00
40.80
46.20
51.20
55.80
60.00
63.80
67.20
10.00
14.00
17.50
20.75
23.80
26.70
29.50
32.25
35.10
38.30
42.70
48.70
57.70
-10.00
-6.20
-2.30
1.45
5.00
8.30
11.30
13.95
16.10
17.50
17.30
15.10
9.50
Average
Marginal
Total
Cost
Cost
(MC)
(ATC)
0
~
14.00
4.00
8.75
3.50
6.92
3.25
5.95
3.05
5.34
2.90
4.92
2.80
4.61
2.75
4.39
2.85
4.26
3.20
4.27
4.40
4.43
6.00
4.81
9.00
Marginal
Revenue
(MR)
~
7.80
7.40
7.00
6.60
6.20
5.80
5.40
5.00
4.60
4.20
3.80
3.40
$15.00
Revenue-Cost Comparison
Demand Price
$10.00
MC=MR
Average
Total Cost
$5.00
$0.00
1
10 11 12
OUTPUT
Price Per Unit (Demand) $8.00
10
Output
Total Revenue (TR)
11
12
13