Intro. to Microeconomics - Econ 201 Lane Community College

1a) A perfectly competitive firm produces video game cartridges, which sell for $21. Complete the firms cost structure in the table below.

b) How much are fixed costs?

Output Total Total ATC AVC MC MR Profit

Cost Revenue

0 50

1 55

2 62

3 75

4 96

5 125

6 162

7 203

2a) On a single graph draw the total revenue curve and the total cost curve.

b) According to the graph, is the firm making a profit or a loss?

3a) On a new graph draw the ATC, AVC, MC and MR curves.

b) What is the profit-maximizing output level?

c) What is the size of the profit or loss if the firm continues to produce?

d) What is the size of the loss if the firm shuts down?

e) Should the producer stay in business or shut-down. Explain your answer.

f) In general, will firms be entering or exiting this market?

4a) Suppose the market price of the product rises to $29 per cartridge.

On a third graph redraw the total revenue curve and the total cost curve given the

new price.

b) According to the graph, is the firm making a profit or a loss?

5a) On a fourth graph draw the ATC, AVC, MC and MR curves.

b) What is the profit-maximizing output level?

c) What is the size of the profit or loss if the firm continues to produce?

d) Should the producer stay in business or shut-down. Explain your answer.

e) In general, will firms be entering or exiting this market?