Question

Suppose the output (q) produced by different amounts of labour (L) hired by a firm is given below:
L 0 1 2 3 4 5 6
q 0 3 9 18 24 27 28
(c) At each of the possible (positive) output levels calculate average variable cost (AVC), average total cost (ATC), and marginal cost (MC). Show your full calculations for the output level q =24. In a new diagram, graph these values. [Hints: (i) If X additional units cost Y additional dollars, then the appropriate MC number is Y/X. (ii) MC numbers are traditionally plotted halfway between output levels since they apply to the move between these two levels (they are not a measurement at a level). In this case, because the gaps between output levels are uneven, this procedure would be complicated, so just graph MC at the “end” output level.]
(d) Suppose this firm operates in a perfectly competitive market where the market price is $4.00 per unit of output. How many units will the firm produce? What if the market price is $12.00? What if the market price is 36.00?

Answer 1

Answer on Question #48538, Economics, Microeconomics

(c)

$$\mathrm{AVC} = \mathrm{VC} / \mathrm{q}, \mathrm{ATC} = \mathrm{TC} / \mathrm{q}, \mathrm{MC} = \Delta \mathrm{TC} / \Delta \mathrm{q}$$

(d) If this firm operates in a perfectly competitive market and $\mathrm{P} = \$4.00$ per unit of output, the firm will produce the quantity, for which $\mathrm{MR} = \mathrm{MC} = \mathrm{P} = \$4$ , so $\mathrm{q} = 18$ units. If the market price is $\$12.00$ , for $\mathrm{MR} = \mathrm{MC} = \mathrm{P} = \$12$ $\mathrm{q} = 3$ units. If the market price is 36.00, for $\mathrm{MR} = \mathrm{MC} = \mathrm{P} = \$12$ $\mathrm{q} = 28$ units.

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