Costs and Profit

I. Consider the following data for a firm that is a perfect competitor in the market for its product.
Complete the table below.
qty of
output

total
cost

60

105

145

180

210

245

285

330

385

450

10

525

total
fixed cost

total
variable cost

average
total cost

average
fixed cost

average
variable cost

II. Suppose the product price is $32. Explain why this firm will not produce in the short run.

III. Suppose the product price is $38.

a. Explain why this firm will produce in the short run.

b. What is the profit-maximizing output level? ______

c. What is the total profit or loss? ______
IV. Suppose the product price is $41.
a. What is the profit-maximizing output level? ______
b. What is the total profit or loss? ______
V. Suppose the product price is $46.
a. What is the profit-maximizing output level? ______
b. What is the total profit or loss? ______

marginal
cost

VI. Suppose the product price is $56.

a. What is the profit-maximizing output level? ______
b. What is the total profit or loss? ______
VII. Suppose the product price is $66.
a. What is the profit-maximizing output level? ______
b. What is the total profit or loss? ______
VIII. Suppose the industry consists of 1500 firms with the same cost data as provided above.
Use the information you calculated to complete the table below.
price

qty supplied by one firm

qty supplied by 1500 firms

32
38
41
46
56
66
IX. Suppose the market demand schedule is as indicated in the table below.

price

total qty
demanded

32

15,000

38

13,500

41

12,000

46

10,500

56

9,500

66

8,000

a. What will the equilibrium price be? _______

b. What will be the equilibrium output level for the industry? __________
c. What will be the profit or loss per firm? _______
d. In the long run, will the industry expand, contract, or remain the same size? ______________