Term 1, part 2
Perfect Competition – Problem Set
Question 1
Consider the following combinations of Q and Total Cost. If P225, find the firm’s
profit maximising point. What are the profits at this level of Q?
Q TC
0 55
1 75
2 90
3 98
4 100
5 105
6 115
7 130
8 155
9 190
10 250
Question 2
Suppose Price = 40 and AC 2 25 at Q=10.
What is the total profit if Q = 10
Question 3
(1) Refer to the following Table. This table describes the relationship between
output, marginal revenue, and marginal cost. If the firm is currently producing
14 units, what would you advise them to do?
a. decrease quantity to 13
b. increase quantity to 15
c. remain at 14 units
d. increase quantity to 16 units
(2) If the firm is maximizing profit, how much profit is it earning?
a. 0
b. €1.00
c. €16.00
d. There is not sufficient data to determine firm profitability.
Q Marginal Marginal
Cost Revenue
12 5 9
13 6 9
14 7 9
15 8 9
16 9 9
17 10 9
Question 4
35. Russell’s Shoe Repair also produces custom-made shoes. When Mr. Russell
produces 12 pairs a week, the MC ofthe twelfth pair is €84, and the MR ofthat
unit is €70. What would you adVise Mr. Russell to do?
a. produce more custom-made shoes
b. decrease the price
c. produce fewer custom-made shoes
Question 5
If FC=600, VC=550 and TR: 1,000, what should the firm do?