Chapter 8: Q1. (page 325)
The data in the table below give information about the price (in dollars) for which a firm can sell a unit of output and the total cost of production.
a. Fill in the blanks in the table.
b. Show what happens to the firm’s output choice and profit if the price of the product falls from
| q | P= \(60 | C | R | MC | MR | P= \)50 | R | MC | MR | ||
| 0 | 60 | 100 | |||||||||
| 1 | 60 | 150 | |||||||||
| 2 | 60 | 178 | |||||||||
| 3 | 60 | 198 | |||||||||
| 4 | 60 | 212 | |||||||||
| 5 | 60 | 230 | |||||||||
| 6 | 60 | 250 | |||||||||
| 7 | 60 | 272 | |||||||||
| 8 | 60 | 310 | |||||||||
| 9 | 60 | 355 | |||||||||
| 10 | 60 | 410 | |||||||||
| 11 | 60 | 475 |
Short Answer
a. The blanks are filled below in the table:
b. The firm will decrease its output from 10 units to 9 units. The profit decreases from $190 to $105.
Step by step solution
Filling the blanks in the table.
The table asks for Total revenue (R), profit (π), marginal cost (MC), and marginal revenue (MR) for each unit produced. The R (total revenue) is calculated by multiplying the price by the units produced. The profit is calculated by subtracting the TC from R.
The marginal cost is the change in total cost when an additional unit is produced. And marginal revenue is the change in total revenue when an additional unit is produced.
The table below shows the R, π, MC, and MR for each unit produced:
At an output level of 10 units, the firm earns a maximum profit of $190. Hence the firm will produce 10 units of the product.
Effect on firm’s output choice and profit when the product price falls from $60 to $50.
When the price is at $60, the firm earns a maximum profit of $190 at an output level of 10 units. If the price falls to $50, it will affect the total revenue (R), profit (π), and marginal revenue (MR) of the product for each unit. The following table depicts the change in total revenue, profit, and marginal revenue:
At the price level of $50, the firm is earning a maximum profit of $105 at nine units. Hence, the firm will produce nine units at this price level.
From the above table, it is concluded that the fall in the price level from $60 t0 $50 decreased the firm’s output level from 10 units to 9 units. The profit also declines from $190 to $105.
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