Exercises 6.

Perfect competition

Exercise 1.

Quantity Price Total revenue Total cost Profit Average Marginal Marginal cost Marginal
revenue revenue profit
(Q) (P) (TR = P x Q) (TC) (TR - TC) (AR = TR/Q) (MR = (MC = ΔTC/ΔQ) (MR - MC)
ΔTR/ΔQ
0 6 0 3 -3 0
1 6 6 5 1 1
2 6 12 8 4 2
3 6 18 12 6 2
4 6 24 17 7 1,75
5 6 30 23 7 1,4
6 6 36 30 6 1
7 6 42 38 4 0,571
8 6 48 47 1 0,125

a) what is the level of output that creates highest profit?

b) why the production at Q=0 creates loss?
c) why after increasing the output from Q=5 to Q=6 the profit starts to fall?

Exercise 2.
Q P VC FC TC MC TR AR MR MP
0 10 0 5
1 10 10 5
2 10 16 5
3 10 25 5
4 10 29 5
5 10 35 5
6 10 38 5
7 10 43 5
8 10 49 5
9 10 56 5
10 10 61 5
11 10 71 5
12 10 84 5
13 10 96 5
14 10 103 5
15 10 150 5

a) Prepare a short analysis of the table above.

Exercise 3.

a) what is the level of output that maximizes profit in the short run?
b) Indicate the area that represents the profit of the company
c) What is the minimal price that creates incentive for production.
d) Which of the curves represents the supply line?

Exercise 4.

a) what is the level of output that maximizes profit in the short run,
b) indicate the area that represents loss for the company,
c) compare the area that represents loss with the area that represents fixed costs in the enterprise.
d) prepare short list of recommendations.
Exercise 5*.

Prepare (250 words) analysis of the figure. Keep in mind that the analysis should indicate an optimal level
of output for each observed level of price and costs of production.