Question

A perfectly competitive firm has the following short-run total cost: $$ \begin{array}{c|c} \text { Quantity } & \text { TC } \\ \hline 0 & \$ 5 \\\ 1 & 10 \\\ 2 & 13 \\\ 3 & 18 \\\ 4 & 25 \\\ 5 & 34 \\\ 6 & 45 \end{array} $$ Market demand for the firm's product is given by the following market demand schedule: $$ \begin{array}{c|c} \text { Price } & \text { Quantity demanded } \\\ \$ 12 & 300 \\\ 10 & 500 \\\ 8 & 800 \\\ 6 & 1,200 \\\ 4 & 1,800 \end{array} $$ a. Calculate this firm's marginal cost and, for all output levels except zero, the firm's average variable cost and average total cost. b. There are 100 firms in this industry that all have costs identical to those of this firm. Draw the shortrun industry supply curve. In the same diagram, draw the market demand curve. c. What is the market price, and how much profit will each firm make?

Short answer

Question: Based on the given information and the steps provided, calculate the marginal cost, average variable cost, and average total cost of each firm, and determine the market price and profit of each firm. Answer: The exact values for marginal cost, average variable cost, average total cost, market price, and profit cannot be calculated without the specific cost and demand figures provided in the exercise. Please refer to the given data in your exercise and follow the steps mentioned above to arrive at the numerical answers.

Step-by-step solution

Part a: Calculate Marginal Cost, Average Variable Cost, and Average Total Cost

Step 1: Find Marginal Cost Marginal cost (MC) is the additional cost of producing one more unit of a good. To find the marginal cost, we can calculate the change in total cost (TC) as the quantity of output (Q) increases: MC = ΔTC/ΔQ Step 2: Find Average Variable Cost (AVC) and Average Total Cost (ATC) Average variable cost is the variable cost per unit of output, while average total cost is the total cost per unit of output. Since the exercise does not provide variable costs, we can assume that all costs are variable except for the \$5 fixed cost when quantity is 0. The formula to calculate AVC and ATC are as follows: AVC = (TC - Fixed Costs) / Q ATC = TC / Q

Part b: Draw Short-Run Industry Supply Curve and Market Demand Curve

Step 1: Find Individual Firm Supply Curve To find the short-run industry supply curve, we need to obtain the individual firm's supply curve first. The firm's supply curve is derived from their marginal cost curve. The firm will supply output up to the point where marginal cost equals the market price. Step 2: Aggregate 100 Firms' Supply Curve There are 100 identical firms in this industry. To find the short-run industry supply curve, sum up individual firm's supply curve at each price level. Step 3: Draw Market Demand Curve The market demand curve is given in the exercise. To sketch the demand curve, plot the price and quantity demanded pairs on the graph. Step 4: Combine Short-Run Industry Supply Curve and Market Demand Curve In a single diagram, draw the short-run industry supply curve and market demand curve. Their intersection determines the market equilibrium price and quantity.

Part c: Determine Market Price and Calculate Profit

Step 1: Find the Market Equilibrium Price The market equilibrium price is determined by the intersection of the short-run industry supply curve and market demand curve. Step 2: Calculate Each Firm's Profit To calculate the profit of each firm, use the following formula: Profit = Total Revenue - Total Cost Total Revenue (TR) is the product of quantity produced and price, and Total Cost is given in the exercise. By subtracting Total Cost from Total Revenue, we can determine the profit of each firm.