Business economics

Profits Answer

EconomicsOnline • • 1 min read

Answers

OUTPUT PRICE FC  VC TC ATC MC TR MR Profit
0 100 100 0 100 0
1 90 100 40 140 140 40 90 90 -50
2 80 100 60 160 80 20 160 70 0
3 70 100 70 170 56.7 10 210 50 40
4 60 100 90 190 48.5 20 240 30 50
5 50 100 120 220 44 30 250 10 30
6 40 100 190 290 48.3 70 240 -10 -50
7 30 100 260 360 51.4 100 210 -30 -150
8 20 100 460 560 70 200 160 -50 -400

  1. Profit maximisation is at 4 units, with supernormal profits at £70,000. This is also where MC  MR, at £40,000.

  2. Sales revenue maximising = 6 units, but the firm would make a loss of £20,000.

  3. Efficiency at profit max –  ATC is £52,500 – the lowest possible average total cost is £50,000, hence there is a loss of productive efficiency. The price, of £70,000, is greater than the marginal cost, of £40,000, hence there is also allocative inefficiency.

OUTPUT PRICE FC  VC TC ATC MC TR MR Profit
0 20 10 0 10 10 0 -10
1 18 10 6 16 16 6 18 18 2
2 16 10 12 22 11 6 32 14 10
3 14 10 20 30 10 8 42 10 12
4 12 10 30 40 10 10 48 6 8
5 10 10 42 52 10.2 12 50 2 -2
6 8 10 56 66 11 14 48 -2 -18
7 6 10 74 84 12 18 42 -6 -42
8 4 10 96 106 13.25 22 32 -10 -74
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