Question

The marginal cost to produce one bottle of developer is $5. There is no fixed cost. Note that this is a market demand, not a firm's individual demand schedule.

1)Calculate total revenue, total cost, marginal revenue and total profit.

Quantity Demanded : 0, 10, 20, 30, 40, 50, 60, 70, 80

Price: 40, 35, 30, 25, 20, 15, 10, 5, 0                              

2) If the market for developer is perfectly competitive, what quantity will be produced?

What price will be charged? What will the firm’s profit be? Write a sentence explaining how you

determined each of those three answers.

Answer 1

1)

$TR = P \times Q$

$TC = FC + VC = 0 + Q \times MC = Q \times MC$

$MR = \frac{\delta TR }{ \delta Q}$

$MC = \frac{\delta TC }{ \delta Q}$

For a perfect competitive firm, profit is maximized when $P = MC$

$Profit = Q \times (P - MC) = TR - TC$

TR denotes total revenue, TC denotes total cost, MR denotes marginal revenue, MC denotes marginal cost, P denotes price and Q denotes quantity .

$MR = \frac{\delta TR }{ \delta Q}$

We cannot calculate marginal revenue very first cell so we start counting cell 1 from Q=10

Cell 1 where Q=10

$MR=\frac{350-0}{10-0}=35$

cell 2 where Q=20

$MR=\frac{600-350}{20-10}=25$

cell 3 where Q=30

$MR=\frac{750-600}{30-20}=15$

2)

For a perfect competitive firm, profit is maximized when $P = MC$ and corresponding

$Profit = TR - TC.$

When $P = MC = 5$

Quantity produced $= 70$

Price charged $= 5$

Profit $= 0$