Output and Cost

Answer 1
Labour Output(TP) Average Product Marginal Product
1 30 30
2 70 35 40
3 120 40 50
4 160 40 40
5 190 38 30
6 210 35 20
7 220 31.4 10

Total Product Curve

250 45
40
200
35
150 30
Output

Total Product Curve

25
100
20
50 15
10
0
0 1 2 3 4 5 6 7 5
labour 0
0 1 2

b draw the average product curve the same way as total product curve

c The marginal product curve is drawn by taking output as follows

Marginal output Marginal Product

1.5 40
2.5 50
3.5 40
4.5 30
5.5 20
6.5 10.0
 Marginal Product Curve
60

50

40
Marginal Product Curve
30

20

10

0
1 2 3 4 5 6 7

d. The firm has the benefit of increased specialisation and division of labour over the range of
output when for which MC decreases or MP increases. This happens until 2.5 workers.
e. The MP of labour decreases after 2.5 workers are employed.
f MP of labour decreases and AP of labour rises betn 2.5 and 3.5 workers.
g. As long as MP of labour exceeds AP , AP rises. So for a range of output , MP of labour while decreasing remains gre
 Average Product Curve
45
40
35
30
25 Average Product Curve

20
15
10
5
0
0 1 2 3 4 5 6 7 8
duct Curve

while decreasing remains greater than AP of labour so the AP of labour rises

Minnie's Mineral Spring
1) Price Qty Demanded TR MR MC TC ATC Profit
10 0 0 1
8 1 8 8 2 3 3.0 5
6 2 12 4 4 7 3.5 5
4 3 12 0 6 13 4.3 -1
2 4 8 -4 8 21 5.3 -13
0 5 0 -8 10 31 6.2 -31

d Total revenue is maximized at qty 6

3) refer to table in answer 2

b. Profit maximizing output is where MC=MR 0r

Here it is at 1.5 unit at price at 7

c. Economic profit (P-ATC)*Q

$ 5.63 here ATC

3.25
 Perfect Competition

Assignment Answers

3ai) output Total Cost P=MR MC ATC TR VC AVC

0 10 14 0 0
1 21 14 11 21.0 14 11 11.00
2 30 14 9 15.0 28 20 10.00
3 41 14 11 13.7 42 31 10.33
4 54 14 13 13.5 56 44 11.00
5 69 14 15 13.8 70 59 11.80

MC=MR is where profit is maximized and here it is where output is 4 4.50

Economic profit at 4.5 unit (TR-TC) 4.5 1.5 TR

(P-ATC)*q 1.58 TC
ATC
ii) when Price is 12 MR=P=12 (by definition of perfect competition)

output MR MC ATC
0 12
1 12 11 21.0
2 12 9 15.0
3 12 11 13.7
4 12 13 13.5
5 12 15 13.8

Profit maximization output is where MC=MR and here it is at 3.5 units

Economic Profit/Loss -5.541667 using (P-ATC)*Q here ATC

iii) 2 .5 units is where MC=MR when price is 10

Loss -10.83333 here ATC

b In order to find the shut down point we have to find AVC. The shutdown point is where MR =P = lowest point of AV
which is at price=10 a pizza

c. Pat's short run supply curve is the same as MC at prices equal to or above $10 a pizza and at y axis at prices below $

d. If they earn economic loss in the long run . To incur loss the price has to be below the minimum ATC =
e. Enter when price is greater than 13.50

4) The market demand schedule for paper

Price Qty Demanded (000 of boxes per week)

3.65 500
5.2 450
6.8 400
8.4 350
10 300
11.6 250
13.2 200

The firm is perfectly competitive and each firm has the following cost and there are 1000 firm in the indu

Output MC AVC ATC

200 6.4 7.8 12.8
250 7 7 11
300 7.65 7.1 10.43
350 8.4 7.2 10.06
400 10 7.5 10
450 12.4 8 10.22
500 20.7 9 11

a. The market price is 8.40 per box of paper because at this price the quantity demanded is equal to qty supplied.
The firms supply curve is the same as its MC curve at prices above minimum AVC. AVC is minimum when MC is equ
MC equal AVC at 250 boxes a week so the firm's supply curve is the same as the MC curve for the outputs equal 250
350*1000= 350,000
b. The industry output is 350,000
c. The output produced by each firm is 350
d. Economic profit/loss -581
e. In the long run firms will exit until price is equal to ATC
f. The number of firm's in the long run is 750. At price 10, qty demanded equals 300,000/week. A typical firm produce
In the long run as firms exit the industry price rises. In the long run equilibrium price will equal minimum ATC which
The quantity demanded is 300,000 a week. So the number of firms is 300000/400 which is 750
g. 10 as in the long run price equals minimum ATC
h. equilibrium quantity is 300,000
 63
61.5
13.65

13.58333 (this is obtained by taking the ATC between the two qtys)

14.33333

R =P = lowest point of AVC

at y axis at prices below $10 a pizza

imum ATC = 13.5

 are 1000 firm in the industry

equal to qty supplied.

minimum when MC is equal to AVC.
for the outputs equal 250 or more. When price is 8.40 each firm produces 350 and qty supplied by 1000 firm is

eek. A typical firm produces 400 boxes per week. So the no of firms in the long run equals 300,000/400
qual minimum ATC which is at 400 boxes which is $10. Each firm remaining in the industry produces 400 boxes a week.