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# Calculating the per unit profit/loss at given price levels

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Suppose a competitive firm's cost information is as shown in the table below.

Output Marginal Cost Average Variable Cost Average Total Cost
0
1 \$ 8.00 \$ 8.00 \$ 17.00
2 7.00 7.50 12.00
3 6.00 7.00 10.00
4 5.00 6.50 8.75
5 6.00 6.40 8.20
6 7.00 6.50 8.00
7 8.00 6.71 8.00
8 9.00 7.00 8.13
9 10.00 7.33 8.33
10 11.00 7.70 8.60

a. Suppose the firm sells its output for \$9.10. What is the firm's marginal revenue (MR)? Explain.
b. Compare MR to marginal cost (MC) to determine the firm's profit maximizing (loss-minimizing) output level. Be sure to check whether or not the firm should shut down. Show all work & explain your answers well.
c. What is the firm's per-unit profit (loss) and total profit (loss) at this output level? Show all your work.
d. Repeat parts a. through c. assuming the price has fallen to \$7.10.
e. Repeat again assuming the price has fallen to \$6.10.
f. At what price does the firm earn a normal profit? Explain.
g. At what price must this firm shut down? Explain.

https://brainmass.com/economics/price-levels/calculating-the-per-unit-profit-loss-at-given-price-levels-501884

#### Solution Preview

a) A competitive firm's marginal revenue is equal to market price. So, Marginal Revenue is \$9.10

b) A competitive firm chooses its output level such that marginal revenue is less than or equal to marginal cost. In the given case, any output above 8 units will make marginal cost higher than the marginal revenue i.e. \$9.10.
So, firm can choose the output level of 8 units. At this output level, AVC is lower than the price, firm should continue to operate at ...

#### Solution Summary

Solution describes the steps to calculate the marginal revenue output level and per unit profit/loss.

\$2.19