ECO 401 Assignment # 2 Solution

ECO 401 Assignment # 2 Solution

Semester 2011

Question:

A firm operating in competitive environment faces the following price (P),quantity (Q), total fixed cost (TFC) and total variable cost (TVC) schedules respectively:

A. Calculate total revenue (TR), marginal revenue (MR), total cost (TC),marginal cost (MC) and profit (π) for each level of output (Q).

Solution:-

Q	P	TFC	TVC	TR	MR	TC	MC	π
400	2.5	150	750	1000	—	900	—	100
500	2.25	150	830	1125	1.25	980	0.8	145
600	2	150	905	1200	0.75	1055	0.75	145
700	1.75	150	995	1225	0.25	1145	0.9	80

B. Find the optimal level of output and price which maximizes firm’s profit.

 

Answer:-

           As we know that profit is maximized at the point where MC = MR. The optimal level of Output (Q) and Price (P) at which maximizes firm’s profit is 600 and 2.