You are given the following information about the costs of a perfectly competitive firm.
QuantityTFC TVC
0 45 0
1 45 20
2 45 35
3 45 45
4 45 75
5 45 120
6 45 180
You are hired to determine the profit-maximizing quantity of the firm for different market prices. Complete the table below.
Market Price Profit-maximizing level of output Total Revenue Total cost
$14
$18
$44
$53
$70
how do I find prot maximizing level of output, tr, tc and profit?
Thanks Kathy
To find the profit-maximizing level of output, total revenue, total cost, and profit, you need to follow these steps:
1. Calculate Total Revenue (TR):
Total Revenue (TR) is the market price multiplied by the quantity of output sold. TR = Market Price * Quantity.
2. Calculate Total Cost (TC):
Total Cost (TC) is the sum of Total Fixed Cost (TFC) and Total Variable Cost (TVC). TC = TFC + TVC.
3. Calculate Profit (π):
Profit is Total Revenue (TR) minus Total Cost (TC). π = TR - TC.
4. Find the profit-maximizing level of output:
The profit-maximizing level of output occurs where marginal cost (MC) equals marginal revenue (MR). It can be determined by comparing the additional cost and additional revenue generated from each additional unit of output. If MC > MR, the firm should produce less, and if MC < MR, the firm should produce more.
Let's apply these steps to determine the profit-maximizing level of output, total revenue, total cost, and profit for each market price:
1. For $14:
- Quantity: To find the profit-maximizing level of output, you need to compare the marginal cost (MC) and marginal revenue (MR) at different quantities. Calculate the MC for each quantity by finding the change in total cost for each additional unit of output. MC = ΔTC/ΔQuantity. Then compare it with the market price ($14) to find the profit-maximizing quantity (where MC = MR).
- Total Revenue (TR): Calculate TR by multiplying the market price ($14) by the profit-maximizing quantity.
- Total Cost (TC): Calculate TC by summing up Total Fixed Cost (TFC) and Total Variable Cost (TVC) at the profit-maximizing quantity.
- Profit (π): Calculate π by subtracting TC from TR.
Repeat these steps for each market price given in the table to determine the profit-maximizing level of output, total revenue, total cost, and profit.