Assignment:
Profit Maximization
Task 1:Consider the following table of costs for the Winsome Widget Factory, which operates in a perfectly competitive market. The market price faced by this firm is $6.00 per widget.
a. Fill in the formula for AFC, AVC, ATC, MC, TR, MR, and Total Profit at the top of the column in the gray section within the table.
b. Fill in the missing values for TFC, TVC, AFC, AVC, ATC, MC, TR, MR, and Total Profit in the blue sections of the table.
c. Determine the profit maximizing level of output. Explain how you arrived at that conclusion.
d. What is the total profit at the profit maximizing level of output? How does that compare to profit at other levels of output?
e. What is the lowest price that Winsome Widgets will accept and continue to produce in the short run? Explain.
f. Is Winsome Widgets in long-run equilibrium? Explain.
Task 2: Given a numeric production schedule, you will calculate profit and make decisions about short-run profitability to answer questions relating to your calculations. Jerry's Lock Shop is a perfectly competitive firm, and Jerry is operating at his level of output, which maximizes profit. He can change locks for 20 different customers per day and charges each customer $35 for each lock. His total cost of changing locks is $800 and his fixed cost is $160.
Answer the following questions. For each question, show the formula and the calculation as well as the final answer.
a. What is Jerry's marginal cost? Explain how you arrived at that answer.
b. Calculate Jerry's profit.
c. Advise Jerry regarding his short-run decision to produce. Explain how you arrived at that answer.
d. Advise Jerry regarding his long-run decision to produce. Explain how you arrived at that answer.