CIVL 395 Homework 3 Spring 20

1. The total cost of producing a given number of items is

Q 0 1 2 3 4 5 6 7 8 9 10 11 12 13
T.C ($) 55 65 71 75 80 86 94 108 126 150 180 220 280 350

a) Tabulate the AC, AVC, AFC, and MC schedules and plot on the same set of axes
b) If under the condition of perfect competition the price of the commodity is $24, what
quantity should the firm produce in order to maximize profits?
c) What is the profit for part b)
d) If the firm were producing 2 units less than the output level of part b), would they still be
making a profit? Don’t calculate just explain why. Also explain why the profit will
increase if they increase production.
e) Plot the total revue and total cost curves on the same set of axes. Draw a line indicating
profit at the point where profit is maximized.

2. Assume the firm in problem 1 operates as a monopoly, with the following demand curve

Q 1 2 3 4 5 6 7 8 9 10 11 12 13
P($/unit) 380 317 261 220 190 163 142 125 110 97 84 72 60

a) Determine the quantity the firm should produce to maximize profit in the short run. Plot
the demand curve, MC, MR, and AC curves
b) Compute the maximum profit.
c) Compute the excess profit the monopolist receives over the competitive level of profit.

Due Thursday 2/3/22