Question: Suppose a competitive firm's cost information is as shown in the table illustrated below.
|
Output
|
Marginal Cost
|
Average Variable Cost
|
Average Total Cost
|
|
0
|
|
|
|
|
1
|
$ 8.00
|
$ 8.00
|
$ 17.00
|
|
2
|
7.00
|
7.50
|
12.00
|
|
3
|
6.00
|
7.00
|
10.00
|
|
4
|
5.00
|
6.50
|
8.75
|
|
5
|
6.00
|
6.40
|
8.20
|
|
6
|
7.00
|
6.50
|
8.00
|
|
7
|
8.00
|
6.71
|
8.00
|
|
8
|
9.00
|
7.00
|
8.13
|
|
9
|
10.00
|
7.33
|
8.33
|
|
10
|
11.00
|
7.70
|
8.60
|
a. Suppose the firm sells its output for $9.10. What is the firm's marginal revenue (MR)? Explain.
b. Compare MR to marginal cost (MC) to determine the firm's profit maximizing (loss-minimizing) output level. Be sure to check whether or not the firm should shut down. Show all work & explain your answers well.
c. What is the firm's per-unit profit (loss) and total profit (loss) at this output level? Show all your work.
d. Repeat parts a. through c. assuming the price has fallen to $7.10.
e. Repeat again assuming the price has fallen to $6.10.
f. At what price does the firm earn a normal profit? Explain.
g. At what price must this firm shut down? Explain.