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Calculating profit maximizing output level in the given case

Please refer attached file for better clarity of table.

Consider the following demand schedule. Does it apply to a perfectly competitive firm? Compute marginal and average revenue.

Price Quantity Price Quantity
100 1 70 5
95 2 55 6
88 3 40 7
80 4 22 8

Suppose the marginal cost of producing the good in the question is a constant $10 per unit of output. What quantity of output will the firm produce?

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Solution Preview

Please refer attached file for better clarity of table.

Demand faced by perfectly competitive firm is perfectly elastic i.e. a horizontal line. Given demand schedule represents downward slopping demand. We can say that given demand schedule does not apply to perfectly competitive firm.

Price,P Quantity, Q Total Revenue, TR Marginal Revenue MR* Average Revenue, AR
P*Q TR/Q
100 1 100 ...

Solution Summary

Solution describes the steps to find out the profit maximizing output in the given case.

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