Name: Nguyễn Tiến Dũng

Class: E-BDB 4
Student ID: 11221501

TOPIC 7: FIRM’S DECISION MAKING IN PERFECT

COMPETITION.
a.

Output Total Total Total Average Average Average Marginal

fixed variable cost fixed variable total cost ($)
(Q) cost($) cost ($) ($) cost ($) cost ($) cost ($) (MC)
(FC) (VC) (TC) (AFC) (AVC) (ATC)

0 200 0 200 0 0 0

1 200 50 250 200 50 250 50

2 200 90 290 100 45 145 40

3 200 120 320 200/3 40 320/3 30

4 200 160 360 50 40 90 40

5 200 220 420 40 44 84 60

6 200 300 500 200/6 50 500/6 80

7 200 400 600 200/7 400/7 600/7 100

8 200 520 720 25 65 90 120

9 200 670 870 200/9 670/9 670/9 150

10 200 900 1100 20 90 110 230

b, If the price was 100$, the firm would produce 7 outputs. Because with
that number of output, the price = the marginal cost It would make a
positive profit.

c, The profitable situation in the question b doesn’t exist in the long – run because
in the long-run, only normal profit can be earned.

Q TC TR MC FC VC AVC AFC ATC

0 50 1 50 0 0 0 0

1 55 21 5 50 5 5 50 55

2 62 42 7 50 12 6 25 31

3 75 63 13 50 25 25/3 13 25

4 96 84 21 50 46 11.5 25/2 24

5 125 105 29 50 75 15 10 25

6 162 126 37 50 112 56/3 25/3 27

7 203 147 41 50 153 153/7 50/7 29

8 248 168 45 50 198 99/4 25/4 31

B,
Total Product (Q) Total Revenue (TR) Total Cost (TC) Profit
0 1 50 -49
1 21 55 -34
2 42 62 -20
3 63 75 -12
4 84 96 -12
5 105 125 -20
6 126 162 -36
7 147 203 -56
8 168 248 -80

→ The optimal output level (Q * ) that gives the firm profit maximization is 3 and
4 products. The maximum profit is -12 $.

C,
Total Revenue (TR) Marginal Revenue (MR) AVC ATC
1 20 0 0
21 21 5 55
42 21 6 31
63 21 25/3 25
84 21 11.5 24
105 21 15 25
126 21 56/3 27
147 21 153/7 29
168 99/4 31

→ AVC min= 25/3; ATC min= 24

→ At all price: AVC min < Price (MR) < ATC min
→ Firm should continue producing to minimize total lost
1. TR and MR equation

→ TR = 8Q

→ MR = TR’(q) = (8Q)’ = 8

2. MC, VC, AVC, AFC, ATC equation

3. Optimal output level (Q* ) that gives the firm profit maximization and
the maximum profit.

Pi = TC - TC = 8Q - (Q² + 2Q + 4) = - Q² + 6Q -4

Pi’ = -2Q + 6
Pi’ = 0 Q=3

=> Pmax = P(3) = 5

=> The maximum profit is 5$ at Q* = 5

4. Break even price and break even quantity

MC = ATC

= 2Q + 2 = Q + 2 + 4/Q

Q = 4/Q

Q = 2 (do Q >= 0) =>

break even quantity = 2

break even price:

P = MC = ATC = 6$
5. If market price decrease to P= 4$, should the firm continue the production?
→ When the price decreases into 4$ per unit, the firms should continue the
production process. Because, at this price, the producer still earns the profit (=KH
= illustrated by the green rectangle), which can minimize the total economic loss
(=IK)

In detail: AVC(min=3) < P=4$ < ATC(min=6)

→ If the producer stops the manufacturing, their unit loss would become bigger
(illustrated by the green rectangle + the pink rectangle)