Question

4) A competitive firm is maximizing profits by producing 250 units of output at the current market price of RM1000 per unit. The firm has average fixed cost (AFC) of RM300 and total costs of RM300,000 at this output level.
(a) Draw a diagram showing all the relevant cost and demand curves. That is, include the MR, MC, AVC, and ATC curves.
[6 marks]
(b) Calculate TFC, TVC, ATC, AVC, MC, TR, and MR.
[6 marks]
(c) Calculate and indicate the area of profit on your diagram.
[2 marks]

Answer 1

1. Task

4) A competitive firm is maximizing profits by producing 250 units of output at the current market price of RM1000 per unit. The firm has average fixed cost (AFC) of RM300 and total costs of RM300,000 at this output level.

(a) Draw a diagram showing all the relevant cost and demand curves. That is, include the MR, MC, AVC, and ATC curves.

[6 marks]

(b) Calculate TFC, TVC, ATC, AVC, MC, TR, and MR.

[6 marks]

(c) Calculate and indicate the area of profit on your diagram.

[2 marks]

2. Solution

3. Answer

a) Diagram 1. MR, AVC, MC, ATC

Table 1. MR, AVC, MC, ATC

b) Table 2. MR, TR, AVC, MC, ATC, TFC, TVC, zero profit point

c) Diagram 2. TR, TC,TFC, TVC, profit or loss

Table 2. TR, TC,TFC, TVC, profit or loss

The area of profit includes quantity of more than 750PCS, because zero profit point is 750PCS and MR $>\mathrm{MC}$ .