Question

[Economics, three part, 100 points]

The graph shows the average total cost (ATC) curve, the marginal cost (MC) curve, the average variable cost (AVC) curve, and the marginal revenue (MR) curve (which is also the market price) for a perfectly competitive firm that produces terrible towels. Answer the three accompanying questions, assuming that the firm is profit-maximizing and does not shut down in the short run.

1) What is the firm's total revenue?

2) What is the firm's total cost?

3) What is the firm's profit? (Enter a negative number for a loss.)

Answer 1

The firm's total revenue is $78,000

The firm's total cost is $128,700

The firm's profit is $-50,700 (a loss)

What is the firm's total revenue?

The equilibrium price and quantity is the point where marginal revenue (MR) equals marginal cost (MC).

Firm's Total Revenue = Equilibrium price × equilibrium quantity

= 3000 × 260

= $78,000

Firm's Total Cost = Cost per unit × Equilibrium quantity

= $495 × 260

= $128,700

Firm's Profit = Firm's Total Revenue - Firm's Total Cost

= $78,000 - $128,700

= $-50,700

Therefore, the firm made a loss