Answer to Question #268351 in Economics of Enterprise for rizky wijaya

Question

Consider total cost and total revenue given in the following table:

Quantity01234567Total cost$88101113192737Total revenue $08162432404856

a. Calculate profit for each quantity. How much should the firm produce to maximize profut ?

b. Calculate marginal revenue and marginal cost for each quantity. Graph 

them. (Hint: Put the points between whole numbers. For example, the 

marginal cost between 2 and 3 should be graphed at ) At what quantity do these curves cross? How does this relate to your answer to part (a)?

c. Can you tell whether this firm is in a competitive industry? If so, can you 

tell whether the industry is in a long-run equilibrium?

Answer 1

(a) The profit is maximized at q= 5 and q=6 with a profit of 21

(b) The MR and MC curve intersect at q=6 with MR=MC=8. This is the condition for profit maximization. The profit is maximized when MR =MC which occurs at q=6 giving highest profit attainable in part a

(c) It is a competitive industry. This is because in a competitive industry, the firm is a price taker and the MR is constant = price given to the firm =8 in this case. In a monopoly MR is a downward sloping curve as well as in oligopoly

It is a competitive industry.

This firm is not in a long run equilibrium. This is a short run equilibrium where thr firm is enjoying super normal profits ( profits > 0) . In the long run, there would be entry of firms in thr industry because of short run positive profit and this would drive down the price of the firm until and unless the firms enjoy normal profits

This is a short run equilibrium