Explain the mc=mr rule


Assignment : The Costs of Production

Joseph Farms, Inc. is a small firm in the agricultural industry. They have asked you to help them complete the limited data they have gathered in an effort to enable effective decision-making. Some work can be done using MS Excel but it must be copied to an MS Word file for the final submission of this assignment. To assist Joseph Farms, Inc., respond to the following:

• Using MS Excel or a table in MS Word, complete Table-1 (Joseph Farms, Inc., Cost and Revenue Data).

o Assume that the price is $165.
o Assume the fixed costs are $125, at an output level of 1.
o Assume that the data represents a firm in pure competition.
o Show your calculations.

• Explain the MC=MR Rule. Describe the market structures to which this rule applies.
• Create a chart to illustrate the data in Columns 9 and 10.
• Describe the profit maximizing (or loss minimizing) output for this firm. Explain why or why not there is an economic profit?
• Explain why a firm in pure competition is considered to be a "price taker."

(Assignment continues below Table-1.)

Table-1: Joseph Farms, Inc., Cost and Revenue Data

Column 1

Column 2

Column 3

Column 4

Column 5

Column 6

Column 7

Column 8

Column 9

Column 10

Column 11

Output

Level

Price per unit

Total Fixed Cost

Total Variable Cost

Total Cost

Average Fixed Cost

Average Variable Cost

Average Total Cost

Marginal

Cost

Marginal Revenue

Total Revenue

0

 

 

 $             -   

 

 NA

 

 

 

1

 

 

 $    113.00

 

 

 

 

 

 

 

2

 

 

 $    213.00

 

 

 

 

 

 

 

3

 

 

 $    300.00

 

 

 

 

 

 

 

4

 

 

 $    375.00

 

 

 

 

 

 

 

5

 

 

 $    463.00

 

 

 

 

 

 

 

6

 

 

 $    563.00

 

 

 

 

 

 

 

7

 

 

 $    675.00

 

 

 

 

 

 

 

8

 

 

 $    813.00

 

 

 

 

 

 

 

9

 

 

 $    975.00

 

 

 

 

 

 

 

10

 

 

 $ 1,163.00

 

 

 

 

 

 

 

• Using the data in Table-1 (Joseph Farms, Inc., Cost and Revenue Data), complete Table-2 (Joseph Farms, Inc., Revenue/Profit/Loss Data). Show your calculations in summary form.

• Using the completed data in Table-2 (Joseph Farms, Inc., Revenue/Profit/Loss Data), Identify the break even output level for this firm.

Table-2: Joseph Farms, Inc., Revenue/Profit/Loss Data

Output

Level

Price

Total Revenue

Total Costs from Table 1

 

Profit or Loss

0

 

 

 

 

1

 

 

 

 

2

 

 

 

 

3

 

 

 

 

4

 

 

 

 

5

 

 

 

 

6

 

 

 

 

7

 

 

 

 

8

 

 

 

 

9

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

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