Wednesday

April 16, 2014

April 16, 2014

Posted by **Matt** on Tuesday, July 12, 2005 at 5:43pm.

Question 73 of 100

The following table represents price, quantity (Q), total revenue (TR), and cost (TFC=total fixed cost, TVC=total variable cost, TC=total cost, MC=marginal cost, AC=average cost) for a price taker.

ourworld.cs. com/spdemergency/table01.gif

Answer the following questions:

- This firm will maximize profit where Q = _______, where marginal revenue and marginal cost are roughly equal.

- Draw the firm's demand curve. Then sketch the marginal cost curve. Drop a line from the intersection to the horizontal axis and label it with the - - Q value that maximizes profit. This profit is $_______?

- Now instead of a price of $5, suppose the price equals $0.75 (75 cents). Which columns of numbers in the table can be compared to the price to prove that the firm should shut down?

-What is the amount of the firm's loss if it shuts down?

I cant seem to view your table at the stated web site. However, your questions practically answer them selves.

1) Your table contents suggest you have a total revenue column. First construct a series of marginal revenue amounts as the change in total revenue caused by a change in Q. Maximum profit occurs when MC=MR.

2) You found the maximizing Q above. Do the algebra and find Total revenue and total cost. Profit=TR-TC.

3) A firm shuts down in the short run if revenue doesnt cover its variable costs. This occurs if price is below the lowest MC.

4) Under a shutdown, a firm's loss is its fixed cost.

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