- A B C D G H Question 3: Profit Maximization for a Perfectly Competitive Firm (Parts a - g) 3 1 5 6 7 E You will complete the rest of table as specified in the following parts of this assignment. b) Use Excel functions to calculate TC = 20 + 10*Q+ 2*Q² and MC. Verify that MC = 10 + 4*Q. c) Use Excel functions to calculate Profit = TR - TC. d) Use the MAX function in Excel to find the highest profit this perfectly competitive firm can earn. Hints: F TR =P*Q MR = change in TR/ change in Q MC change in TC/ change in Q Profit = TR - TC Profit is max at Q, such that MR = MC. Answers: I Parts (a)- (c): J a) Create a table with 15 rows and 8 columns. Name the columns Price (P), Quantity (Q), Total revenue (TR), Marginal revenue (MR), Total cost (TC), Marginal cost (MC), Profit, and Average total cost (ATC Fill in price of $50 and enter values of 0-13 for quantity. Use Excel functions to calculate TR and MR. P Q TR MR TC MC Profit ATC What is the profit-maximizing output? Verify that it satisfies the condition MR = MC. e) Use the MIN function in Excel to find the break-even price of this company. f) Re-do the table you created in the previous parts if FC increases to $30. Compare the highest profit this firm is able to make and the profit-maximizing output level with those found in part (d). + g) Re-do the table you created in the previous parts if the output price decreases to $42. Compare the highest profit this firm is able to make and the profit-maximizing output level with those found in part (d). K L M Part (f): N To O TR
- A B C D G H Question 3: Profit Maximization for a Perfectly Competitive Firm (Parts a - g) 3 1 5 6 7 E You will complete the rest of table as specified in the following parts of this assignment. b) Use Excel functions to calculate TC = 20 + 10*Q+ 2*Q² and MC. Verify that MC = 10 + 4*Q. c) Use Excel functions to calculate Profit = TR - TC. d) Use the MAX function in Excel to find the highest profit this perfectly competitive firm can earn. Hints: F TR =P*Q MR = change in TR/ change in Q MC change in TC/ change in Q Profit = TR - TC Profit is max at Q, such that MR = MC. Answers: I Parts (a)- (c): J a) Create a table with 15 rows and 8 columns. Name the columns Price (P), Quantity (Q), Total revenue (TR), Marginal revenue (MR), Total cost (TC), Marginal cost (MC), Profit, and Average total cost (ATC Fill in price of $50 and enter values of 0-13 for quantity. Use Excel functions to calculate TR and MR. P Q TR MR TC MC Profit ATC What is the profit-maximizing output? Verify that it satisfies the condition MR = MC. e) Use the MIN function in Excel to find the break-even price of this company. f) Re-do the table you created in the previous parts if FC increases to $30. Compare the highest profit this firm is able to make and the profit-maximizing output level with those found in part (d). + g) Re-do the table you created in the previous parts if the output price decreases to $42. Compare the highest profit this firm is able to make and the profit-maximizing output level with those found in part (d). K L M Part (f): N To O TR
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:**Title: Profit Maximization for a Perfectly Competitive Firm**
To understand profit maximization, let's create a spreadsheet with the following steps:
### Step-by-Step Guide:
#### a) Create a Table:
- **Rows**: 15
- **Columns**: 8
- **Column Headers**:
- Price (P)
- Quantity (Q)
- Total Revenue (TR)
- Marginal Revenue (MR)
- Total Cost (TC)
- Marginal Cost (MC)
- Profit
- Average Total Cost (ATC)
#### Initial Setup:
- Set Price (P) at $50.
- Quantities (Q): Enter values from 0 to 13.
- Use Excel functions for TR and MR calculations.
#### b) Total Cost Function:
- Use formula: `TC = 20 + 10*Q + 2*Q^2`
- Verify Marginal Cost (MC) with: `MC = 10 + 4*Q`
#### c) Calculate Profit:
- Formula: `Profit = TR - TC`
#### d) Highest Profit:
- Use Excel's MAX function to find the highest profit. Ensure MR = MC for profit maximization.
#### e) Break-even Analysis:
- Use MIN function in Excel to find the break-even price for this firm.
#### f) Re-evaluation:
- Modify the table for a cost increase to $30 and compare profits.
#### g) Output Price Increase:
- Modify for an output price increase to $42 and compare profits.
### Understanding the Graphical Elements:
- **Graph Explanation**: No graphs provided, but create graphical analysis using Excel charts. Plot Quantity (Q) vs. TR, TC, and Profit to visualize intersections and profit maximization points.
### Hints:
- **TR Calculation**: `TR = P*Q`
- **MR Calculation**: `MR = change in TR/change in Q`
- **MC Calculation**: `MC = change in TC/change in Q`
- **Profit Calculation**: `Profit = TR - TC`
- **Profit Maximization Condition**: `MR = MC`
*This exercise helps understand how firms in a perfectly competitive market can determine the optimal output for maximizing profits, considering different cost structures and price changes.*
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