A perfectly competitive firm faces a price of £14 per unit. It has the following short-run cost schedule:\n\n\n\n\n\nOutput\n\n\n0\n\n\n1\n\n\n2\n\n\n3\n\n\n4\n\n\n5\n\n\n6\n\n\n7\n
A perfectly competitive firm faces a price of £14 per unit. It has the following short-run cost schedule:
\r\n\r\n\r\n\r\n
\r\n
\r\n| \r\n Output \r\n | \r\n\r\n 0 \r\n | \r\n\r\n 1 \r\n | \r\n\r\n 2 \r\n | \r\n\r\n 3 \r\n | \r\n\r\n 4 \r\n | \r\n\r\n 5 \r\n | \r\n\r\n 6 \r\n | \r\n\r\n 7 \r\n | \r\n\r\n 8 \r\n | \r\n
| \r\n TC (£) \r\n | \r\n\r\n 10 \r\n | \r\n\r\n 18 \r\n | \r\n\r\n 24 \r\n | \r\n\r\n 30 \r\n | \r\n\r\n 38 \r\n | \r\n\r\n 50 \r\n | \r\n\r\n 66 \r\n | \r\n\r\n 91 \r\n | \r\n\r\n 120 \r\n | \r\n
(a) Copy the table and put in additional rows for average cost and marginal cost at each level of output. (Enter the figures for marginal cost in the space between each column.)
\r\n(b) Plot AC, MC and MR on a diagram.
\r\n(c) Mark the profit-maximising output.
\r\n(d) How much (supernormal) profit is made at this output?
\r\n(e) What would happen to the price in the long run if this firm were typical of others in the industry? Why would we need to know information about long-run average cost in order to give a precise answer to this question?
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