The table below shows the average cost (AC) for a purely competitive market. The average revenue (AR) is constant at RM5 per unit and the firm’s total fixed cost (TFC) is RM4. Please answer all questions below: a) Fill in the values for total revenue (TR), total cost (TC) and marginal cost (MC) in the column provided. b) Determine the profit maximizing output. c) Show the equilibrium of the firm in a diagram. d) If the average revenue falls to RM3 per unit, calculate the firm’s new profit or loss at the equilibrium. e) Based on your answer in part (d), should the firm continue or stop the production? Justify. Output (Units) Total Revenue (RM) Average Cost (RM) Total Cost (RM) Marginal Cost (RM) Marginal Revenue (RM) 1 8.0 2 5.5 3 4.0 4 3.5 5 3.8 6 4.5 7 6.0
The table below shows the average cost (AC) for a purely competitive market. The average revenue (AR) is constant at RM5 per unit and the firm’s total fixed cost (TFC) is RM4.
Please answer all questions below:
a) Fill in the values for total revenue (TR), total cost (TC) and marginal cost (MC) in the column provided. b) Determine the profit maximizing output.
c) Show the equilibrium of the firm in a diagram.
d) If the average revenue falls to RM3 per unit, calculate the firm’s new profit or loss at the equilibrium. e) Based on your answer in part (d), should the firm continue or stop the production? Justify.
|
Output (Units) |
Total Revenue (RM) |
Average Cost (RM) |
Total Cost (RM) |
Marginal Cost (RM) |
Marginal Revenue (RM) |
|
1 |
|
8.0 |
|
|
|
|
2 |
|
5.5 |
|
|
|
|
3 |
|
4.0 |
|
|
|
|
4 |
|
3.5 |
|
|
|
|
5 |
|
3.8 |
|
|
|
|
6 |
|
4.5 |
|
|
|
|
7 |
|
6.0 |
|
|
|
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