Name: Le Thi Ngoc Lan

Class: E-BBA 12.3

Student Code: 11202024
Group 6

ASSIGNMENT 8:
Exercise 1:
OP Total FC Total TC AFC AVC ATC MC TR P
VC
0 200 0 200 - 0 0 - 0 -200
1 200 50 250 200 50 250 50 100 -150
2 200 90 290 100 45 145 40 200 -90
3 200 120 320 66.6 40 106.6 30 300 20
4 200 160 360 50 40 90 40 400 40
5 200 220 420 40 44 84 60 500 120
6 200 300 500 33.3 50 83.3 80 600 100
7 200 400 600 28.57 57.1 85.67 100 700 100
8 200 520 720 25 65 90 120 800 80
9 200 670 870 22.2 74.4 96.6 150 900 30
a)
b) Price was 100$ , we have table in a
c) Does the profitable situation in the question b exist in
the long – run? Why?
- In the long-run firms in perfect competition earn normal
profit (zero economic profit)
- Because in the long-run, all factors of production are
variable, also perfect competition allows firms free entry
and exit. Firms making profit will attract new firms that
would increase the supply and decrease the price. New
firms will stop entering the market once existing firms
make zero economic profit.

Exercise 2:
A perfect competition firm has selling price of P =
21$
a)
Q 0 1 2 3 4 5 6 7 8
TC 50 55 62 75 96 125 162 203 248
TR 0 21 42 63 84 105 126 147 168
MC - 5 7 13 21 29 37 41 45
FC 50 50 50 50 50 50 50 50 50
VC 0 5 12 25 46 75 112 153 198
AFC 50 25 16. 12. 10 8.3 7.1 6.2
6 5
AVC 0 5 6 8.3 11. 15 18.6 21. 24.7
 5 8
ATC 0 55 31 24. 24 15 26.9 28. 30.9
9 9
P -50
b) Identify optimal output level (Q *) that gives the
firm profit maximization? What is the maximum
profit?
The company always make loss because total cost
larger than total revenue
Exercise 3:
A perfect competition firm has a demand equation of
P=8 ($) and total cost equation of TC= Q +2Q+ 4($)
2

1. Identify TR and MR equation?

- TR = P.Q = 8Q
- MR = TR’(Q) = 8
2.Identify MC, VC, AVC, AFC, ATC equation?
- MC = TC’(Q) = 2Q + 2
- VC = TC-FC =Q +2Q 2

- AVC = VC/Q = Q + 2
- AFC = FC/Q = 4/Q
- ATC = AVC + AFC = Q + 2 + 4/Q
3. What is optimal output level (Q*) that gives the firm
profit maximization? What is the maximum profit?
- Profit maximize when MC = MR
↔ 2Q+2=8 ↔Q¿ =3
 → Profit max=24

4. What is breakeven price and breakeven quantity?

- The break-even price is equal to the minimum ATC. MC
intersect with the ATC at the minimum so we have
intersection MC = ATC:
ATC=MC
4
→ Q+ 2+ =2 Q+2
Q
4
→ Q= →Q=2→ P=2 ×2+2=6( $)
Q

So, the breakeven price is 6$ and the breakeven quantity is

5. If market price decrease to P= 4$, should the firm
continue the production? Why?
- The shutdown price is equal to the min AVC
AVC= Q+2 is a linear , min = 2
 Shut down price in this case is 2$
- The breakeven price is 6$
 If price decrease to 4$ then we have AVCmin< Pnew
< ATC
 The firm should keep producing in order to
minimize the loss . Because if a price falls into the
zone between the zero profit point, where MC crosses
ATC, and the shutdown point, where MC crosses
AVC, the firm will be making losses in the short run
—but since the firm is more than covering its variable
costs, the losses are smaller than if the firm shut down
immediately.