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Worked Problems
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1
A competitive firm's short-run cost information is shown in the table below.
OutputFixed CostVariable CostTotal Cost
0$ 9.00$ 0.00$ 9.00
19.008.0017.00
29.0015.0024.00
39.0021.0030.00
49.0026.0035.00
59.0032.0041.00
69.0039.0048.00
79.0047.0056.00
89.0056.0065.00
99.0066.0075.00
109.0077.0086.00

  1. Suppose the firm can sell all the output it desires at the market price of $9.10. Compute the firm's total revenue and its total profit (loss) for the potential output choices shown in the table. What output level maximizes the firm's profits (or minimizes its losses)?
  2. Repeat part a. assuming the price has fallen to $7.10.

2
Suppose a competitive firm's cost information is as shown in the table below. Its total fixed cost is $9.00.
OutputMarginal CostAverage Variable CostAverage Total Cost
0  
1$ 8.00$ 8.00$ 17.00
27.007.5012.00
36.007.0010.00
45.006.508.75
56.006.408.20
67.006.508.00
78.006.718.00
89.007.008.13
910.007.338.33
1011.007.708.60

  1. Suppose the firm sells its output for $9.10. What is the firm's marginal revenue (MR)?
  2. Compare MR to marginal cost (MC) to determine the firm's profit maximizing (loss-minimizing) output level. Be sure to check whether or not the firm should shut down.
  3. What is the firm's per-unit profit (loss) at this output level?
  4. What is the firm's total profit (loss) at this output level?
  5. Repeat parts a. through d. assuming the price has fallen to $7.10.
  6. Repeat again assuming the price has fallen to $6.10

3
A competitive firm's short-run cost information is shown in the table below.
OutputMarginal CostAverage Variable CostAverage Total Cost
0  
1$ 8.00$ 8.00$ 17.00
27.007.5012.00
36.007.0010.00
45.006.508.75
56.006.408.20
67.006.508.00
78.006.718.00
89.007.008.13
910.007.338.33
1011.007.708.60

  1. If the market price is $5.25, how much will this firm produce? Enter in the second column of the table below. Repeat for the remaining prices shown in the table.
    PriceQuantity Supplied, This FirmQuantity Supplied, 2000 FirmsQuantity Demanded
    $ 5.2520,000
    $ 6.2518,000
    $ 7.2516,000
    $ 8.2514,000
    $ 9.2512,000
    $ 10.2510,000
  2. Fill in the next column to determine the market supply in this industry, assuming there are 2000 identical firms in the industry.

    Further suppose that the market demand schedule for this industry is given by the last column in the table.
  3. What is the equilibrium quantity in this market?
  4. What is the equilibrium price in this market?
  5. What are the resulting output, revenue, cost, and profit of the typical firm?






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