A firm is producing 100 units of its product. At this level of output the AVC=$60, and the ATC=$80. The firm is a price taker and the price for its product is $100. Assuming that the firm is maximizing profits and that labor is the only variable input. From this information:
- Calculate the fixed costs of the firm.
- Calculate the profits and rents of the firm.
Be sure to show your work.
- Given your answers in (b), in one or two sentences, explain the difference between profit and rent.
- Sketch the profit maximizing equilibrium described in the problem in a graph. Be sure to clearly show your answers in (b).
- Assume production abides by a three-stage production function. Is the firm producing where ATC are at a minimum? Explain your answer with your graph in (d).
Suppose a monopolist faces a demand curve given by P = 25 - 1/2 Q and total cost curve given by TC = 100 + 10Q. First, use this information to derive equations for marginal revenue, marginal cost, and average total cost. Then graph these equations, along with the demand curve. Find the profit-maximizing price and output. What is the level of profit or loss for the firm at this price?