Answer to Question #209810 in Microeconomics for lisa

Question

You operate Balvinder’s Best Broccoli Boutique in Burnaby, BC, in a perfectly competitive environment. You have the following information. You want to decide how much you should produce, and what price you should charge. Complete the chart, and answer the questions below. Use TWO decimals in your answers. HINT: Complete your cost calculations first, and review the lecture notes on the relationship of the MC curve to the ATC and AVC curves. Then, to calculate your revenue values, remember that this is perfect competition…Use this space to show me one of your MC calculations….

Complete the chart above, using TWO decimals in your answers. [16] 2 What is your profit maximizing price? ____________ quantity? _______________ 3 What is your profit? ______________

Answer 1

The complete question is

Solution

part 1

the completed table

Part 2 & 3:

A perfectly competitive firm earns only 'normal profits' which are included in its total cost (TC). In other words, for such a firm TC = TR. It also means that TC/Q = TR/Q, or say ATC = AR. So, the price can be obtained from the point where the firm's ATC is at its lowest (else, at any other level of ATC the firm will make losses). We can see in the table that ATC is lowest at 1.22 at the production level of 100 as well as at 200 units. Naturally choosing the higher quantity, the loss minimizing output level will be 200 units, the price will be 1.22, and profit or better say the minimum loss will be zero.

Profit maximizing price = 1.22

Profit maximizing quantity = 200 units

Profit = 0