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Chapter 8: Q3 (page 210)

Look at Table 8.13. What would happen to the firm’s profits if the market price increases to $6 per pack of raspberries?

Short Answer

Expert verified

No change will happen to firm's profits if market price change to $6.

Step by step solution

01

Definitions

Price is the amount of money charged for a good or service.

Total revenue is the total amount received from sale of all units of goods and services

So, Total Revenue = Price x Quantity

02

Numerical Solution

Price = Total Revenue / Quantity

Price at following units :

10 units = 60/ 10 = 6
20 units = 120/ 20 = 6
30 units = 180/ 30 = 6
40 units = 240/ 40 = 6
50 units = 300/ 50 = 6
60 units = 360/ 60 = 6
70 units = 420/ 70 = 6
80 units = 480 / 80 = 6
90 units = 540 / 90 = 6
100 units = 600 / 100 = 6

As price is already 6, there will be no change in profit, ie = Total Revenue - Total Cost

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Most popular questions from this chapter

Perfectly competitive firm Doggies Paradise Inc. sells winter coats for dogs. Dog coats sell for \(72 each. The fixed costs of production are \)100. The total variable costs are \(64 for one unit, \)84 for two units, \(114 for three units, \)184 for four units, and $270 for five units. In the form of a table, calculate total revenue, marginal revenue, total cost and marginal cost for each output level (one to five units). On one diagram, sketch the total revenue and total cost curves. On another diagram, sketch the marginal revenue and marginal cost curves. What is the profit-maximizing quantity?

Explain how the profit-maximizing rule of setting P = MC leads a perfectly competitive market to be allocatively efficient.

What two rules does a perfectly competitive firm apply to determine its profit-maximizing quantity of output?

What are the four basic assumptions of perfect competition? Explain in words what they imply for a perfectly competitive firm.

1. A computer company produces affordable, easy-to-use home computer systems and has fixed costs of \(250. The marginal cost of producing computers is \)700 for the first computer, \(250 for the second, \)300 for the third, \(350 for the fourth, \)400 for the fifth, \(450 for the sixth, and \)500 for the seventh.

a. Create a table that shows the company’s output, total cost, marginal cost, average cost, variable cost, and average variable cost.

b. At what price is the zero-profit point? At what price is the shutdown point?

c. If the company sells the computers for \(500, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.

d. If the firm sells the computers for \)300, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.

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