THE PROBLEM BELOW IS DUE FOR HOMEWORK ON TUESDAY, MARCH 10
NAME _________________________________________
The following short-run cost functions are for a perfectly competitive firm that produces
gadgets:
QUANTITY OF
GADGETS
(Q)
AVERAGE
TOTAL COST
(ATC)
AVERAGE
VARIABLE COST
(AVC)
MARGINAL
COST
(MC)
300 5.00 3.666666 2.00
400 4.00 3.00 1.00
500 3.40 2.60 1.00
600 3.083333 2.416666 1.50
700 3.00 2.428571 2.50
800 3.0625 2.5625 3.50
900 4.00 3.555555 11.50
a. Find the firm’s TOTAL FIXED COSTS? (If you get a number with a
decimal place, round to the nearest whole number). EXPLAIN YOUR
REASONING AND SHOW CALCULATIONS. (4 points)
b. For each of the following market prices , find:
The profit-maximizing (loss-minimizing) level of output
The total economic profit that will be earned at the profit-
maximizing level of output.
SHOW ALL CALCULATIONS AND EXPLAIN YOUR REASONING CLEARLY.
(21 points)
i. Price = $3.50.
