PROFIT MAXIMIZATION
Reminders:
Q: Quantity, TC: Total Costs, VC: Variable Costs, MC: Marginal Costs, MR: Marginal Revenue, TR: Total Revenue
1. Suppose the market for DVD movies is perfectly competitive. The industry price for the movies is $24, and a typical firm has the following total cost data:
Q
TC
VC
MC
MR
TR
Net Profit
0
10
1
33
2
53
3
70
4
90
5
114
6
143
a. Calculate the TR, MR, and MC for each level of output.
b. What condition must be met for the firm to maximize profits? What is the profit maximizing level of output and price for this firm? How much profit would be made?
2. Now suppose that some firms have been able to differentiate their DVDs, and the market has become monopolistically competitive. A typical firm now has the following demand schedule and total cost data:
Q
P
TC
VC
MC
MR
TR
Net Profit
0
40
8
1
35
20
2
30
28
3
25
40
4
20
56
5
15
76
6
10
100
a. Calculate the TR, MR, and MC for each level of output.
b. What condition must be met for the firm to maximize profits? What is the profit maximizing level of output and price for this firm? How much profit would be made?
PROFIT MAXIMIZATION
Reminders:
Q: Quantity, TC: Total Costs, VC: Variable Costs, MC: Marginal Costs, MR: Marginal Revenue, TR: Total Revenue
1. Suppose the market for DVD movies is perfectly competitive. The industry price for the movies is $24, and a typical firm has the following total cost data:
| Q | TC | VC | MC | MR | TR | Net Profit |
| 0 | 10 | |||||
| 1 | 33 | |||||
| 2 | 53 | |||||
| 3 | 70 | |||||
| 4 | 90 | |||||
| 5 | 114 | |||||
| 6 | 143 |
a. Calculate the TR, MR, and MC for each level of output.
b. What condition must be met for the firm to maximize profits? What is the profit maximizing level of output and price for this firm? How much profit would be made?
2. Now suppose that some firms have been able to differentiate their DVDs, and the market has become monopolistically competitive. A typical firm now has the following demand schedule and total cost data:
| Q | P | TC | VC | MC | MR | TR | Net Profit |
| 0 | 40 | 8 | |||||
| 1 | 35 | 20 | |||||
| 2 | 30 | 28 | |||||
| 3 | 25 | 40 | |||||
| 4 | 20 | 56 | |||||
| 5 | 15 | 76 | |||||
| 6 | 10 | 100 |
a. Calculate the TR, MR, and MC for each level of output.
b. What condition must be met for the firm to maximize profits? What is the profit maximizing level of output and price for this firm? How much profit would be made?
Related textbook solutions
Related questions
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.
| Output | Total Cost |
| 0 | 100 |
| 10 | 150 |
| 20 | 180 |
| 30 | 200 |
| 40 | 240 |
| 50 | 300 |
| 60 | 375 |
| 70 | 475 |
| 80 | 600 |
| 90 | 750 |
| 100 | 1,000 |
a. Fill in the formula for AFC, AVC, ATC, MC, TR, MR, and Total Profit.
b. Fill in the missing values for TFC, TVC, AFC, AVC, ATC, MC, TR, MR, and Total Profit.
