Question 2

Profit=TR−TC=110(1000−800)=22,000
Therefore the profit is R22,000

2.
For profit maximization firms,
MC=MR
and MR=AR in a competitive market
∴MC=R1,000
3.
Efficient scale of production occurs when AC=MC
here, MC=R1,000>AC=R800
So, the efficient scale of production of the firm is less than 110 units

The firm is producing 100 units of output.

Average revenue is $10.
Average total cost is $8.
Fixed costs are $200.
To find:
a. profit
b. marginal cost
c. average variable cost
d. efficient scale of the firm
Solution:

 a. profit: Profit is calculated as Total Revenue - Total Cost.

The Total Revenue for 100 units is $10 x 100 = $1000 and
Total Cost is Average Cost per unit x Quantity + Fixed Cost =
$8 x 100 + $200 = $900. Hence, the profit is $1000 - $900 =
$100.

 b. marginal cost: Marginal cost is the change in total cost

that results from producing one additional unit of output. It can
be calculated as the change in total cost divided by the
 change in quantity. In this case, the marginal cost is not given
and cannot be calculated.

 c. average variable cost: Average variable cost is calculated

as Total Variable Cost / Quantity. The Total Variable Cost is
Total Cost - Fixed Cost = $900 - $200 = $700. Hence, the
average variable cost is $700 / 100 = $7.

 d. efficient scale of the firm: The efficient scale of the firm is

the quantity of output at which the average total cost is
minimum. In this case, the efficient scale is not given and
cannot be calculated based on the information provided.