1. Suppose a perfectly competitive firm is faced with the following relationship between total cost and the quantity of output.
Quantity Total cost FC VC MC MR Total Rev Profit
0 $50
1 100
2 130
3 140
4 160
5 190
6 230
7 280
a. Calculate marginal cost and marginal revenue for each level of output when market price is $30.
b. What is the firm's profit-maximizing level of output if the market price is $30?
c. Calculate marginal cost and marginalrevenuefor each level of output when market price is $45.
d. What is the firm's profit-maximizing level of output if the market price is $45?
2. Suppose a perfectly competitive firm produces 100 units of a product and sells each of them for the $5 market price. In each of the following cases, determine whether the firm would produce and earn an above normal (above breakeven) profit, a below normal profit, or whether the firm would shut down. Show your calculations.
- Total cost is $1,500 and fixed cost is $1,300.
- Total cost is $400 and fixed cost is $200.
- Total cost is $1,500 and fixed cost is $800.
3. Do the following
The owner of an optometry practice, in a city with more than a hundred other such practices, has the following demand and cost schedules for eye exams.
Price per Eye Exam Total Cost
Eye Exam per Weekper WeekMarginal Revenue Marginal Cost
$100 100 $10,500
$80 140 $10,800
$60 200 $11,300
$40 310 $12,290
$20 550 $14,762
a. Fill in the columns for total revenue, marginal revenue, and marginal cost. (Remember to pus MR and MC between output levels.)
b. Use the data you filled in for the marginal revenue and marginal cost columns to find the profit-maximizing price and the profit-maximizing number of eye exams per week for this practice. (Hint: A way to verify your answer would be to calculate Total Revenue and subtract Total Cost from it.)
4. Create a chart showing the Create a chart showing the attributes of perfect competition, monopolistic competition, oligopoly and monopoly.
5. Using the chart you created in #3, describe two businesses and place each of them in the one of the 4 categories above (competition, monopolistic competition, oligopoly or monopoly.) Try to use businesses that fit the characteristics of different categories.