1. Complete Table-1 (Joseph Farms, Inc., Cost and Revenue Data), either as a Microsoft Excel spreadsheet, or as a Microsoft Word table. Assume that the price is $165 and the fixed costs are $125, at an output level of 1. Also assume that the data represents a firm in pure competition. Show your calculations in summary form.
2. What is the MC=MR Rule? To what market structures does this Rule apply? Explain your answers.
3. Using Microsoft Excel, graph the data in Columns 9 and 10.
4. What is the profit maximizing (or loss minimizing) output for this firm? Is there an economic profit? Explain your answers.
5. Explain why a firm in pure competition is considered to be a “price taker.”
6. Using the data in Table-1 (Joseph Farms, Inc., Cost and Revenue Data), complete Table-2 (Joseph Farms, Inc., Revenue/Profit/Loss Data), either as a Microsoft Excel spreadsheet, or as a Microsoft Word table. Show your calculations in summary form.
7. Using the data in Table-2 (Joseph Farms, Inc., Revenue/Profit/Loss Data), what is the break even output level for this firm? If this firm is in pure competition, at what output level would they operate? Show your calculations in summary form.
Column 1 Column 2 Column 3 Column 4 Column 5 Column 6 Column 7 Column 8 Column 9 Column 10 Column 11
Output
Level Price per unit Total Fixed Cost Total Variable Cost Total Cost Average Fixed Cost Average Variable Cost Average Total Cost Marginal
Cost Marginal Revenue Total Revenue
0 $ - NA
1 165 125 $ 113.00
2 $ 213.00
3 $ 300.00
4 $ 375.00
5 $ 463.00
6 $ 563.00
7 $ 675.00
8 $ 813.00
9 $ 975.00
10 $ 1,163.00
Output
Level Price Total Revenue Profit or Loss
0
1
2
3
4
5
6
7
8
9
10
wont let me copy&paste
1. To complete Table-1, we need to calculate the values for each column based on the given information. Here's how you can do it:
- Column 2 (Price per unit): The given price is $165.
- Column 3 (Total Fixed Cost): The fixed cost is $125 for all output levels.
- Column 4 (Total Variable Cost): We need more information to calculate this column. Variable costs are usually based on the cost of producing each unit. You can either use given data or assume values for variable costs at each output level.
- Column 5 (Total Cost): This is the sum of fixed and variable costs (Column 3 + Column 4).
- Column 6 (Average Fixed Cost): This is the total fixed cost divided by the output level (Column 3 / Output Level).
- Column 7 (Average Variable Cost): This is the total variable cost divided by the output level (Column 4 / Output Level).
- Column 8 (Average Total Cost): This is the total cost divided by the output level (Column 5 / Output Level).
- Column 9 (Marginal Cost): This is the change in total cost when the output level increases by one unit. You can calculate it by subtracting the total cost at the previous output level from the total cost at the current output level.
- Column 10 (Marginal Revenue): This is the change in total revenue when the output level increases by one unit. Since it is a pure competition market, marginal revenue is equal to the price per unit at all output levels.
- Column 11 (Total Revenue): This is the product of the price per unit and the output level (Column 2 * Output Level).
2. The MC=MR Rule (Marginal Cost = Marginal Revenue) is a decision rule used to determine the profit-maximizing or loss-minimizing output level for a firm. It applies to firms in markets with perfect competition or monopolistic competition. In these market structures, firms are price takers, meaning they have no control over the price and must accept the market price determined by supply and demand. For a profit-maximizing output level, a firm should produce where marginal cost equals marginal revenue. If marginal cost is less than marginal revenue, increasing output can lead to higher profits. If marginal cost is greater than marginal revenue, reducing output can minimize losses.
3. To graph the data in Columns 9 and 10 using Microsoft Excel, you can follow these steps:
- Enter the data from Columns 9 and 10 into two adjacent columns in Excel.
- Highlight the data points in both columns.
- Go to the "Insert" tab in the Excel ribbon.
- Select the type of graph you want to create, such as a line graph or scatter plot.
- Excel will generate a graph displaying the relationship between marginal cost and marginal revenue.
4. To determine the profit-maximizing or loss-minimizing output for this firm, you need to find the point where marginal cost equals marginal revenue (MC=MR). In Table-1, this occurs at an output level of 5 units. At this output level, the firm's average total cost and marginal cost are both $93. The total revenue at this output level is $825 (Column 11), which means there is an economic profit of $825 - $375 (total cost at 5 units) = $450.
5. A firm in pure competition is considered a "price taker" because it has no influence over the price of the product it sells. The market sets the price through the interaction of supply and demand. The individual firm's output level is so small compared to the entire market that it cannot affect the market price. As a result, the firm must accept the market price as given and adjust its production accordingly.
6. To complete Table-2, we need to calculate the values for each column based on the given data in Table-1. Here's how you can do it:
- Column 2 (Price): Copy the price per unit from Column 2 in Table-1.
- Column 3 (Total Revenue): This is the product of the price per unit and the output level (Column 2 * Output Level).
- Column 4 (Profit or Loss): This is the difference between the total revenue (Column 3) and the total cost (Column 5 in Table-1).
- Fill in the values for each output level by applying the formulas mentioned above.
7. To find the break-even output level, we need to determine the output level at which the profit or loss (Column 4 in Table-2) is zero. In this case, it occurs at an output level of 3 units. At this output level, the total revenue and total cost are both $300 (Columns 3 and 5 in Table-2), resulting in no profit or loss. Since this firm is in pure competition, they would operate at the output level of 3 units to break even.