El Iphone 7

Perfect Competition Issues

2. Fast Copy is one of the many companies that are photocopied near a university. The figure shows the cost curves of the company. The market price of a copy is 10 cents.

calculate:

a. What is the marginal revenue of the company?

For a perfectly competitive firm price is always equal to the marginal revenue earned by the firm. Thus the marginal revenue of the firm is 10 cents.

b. What is the production company to maximize profits?

Company should produce at the level where marginal revenue is equal to marginal costs of the firm is equal to marginal revenue. Marginal revenue of the firm is 10 cents. Marginal cost of the firm is at 10 cents when the firm is producing 80units. Thus profit maximizing level of production is 80 units.

(Process: a company always tries to produce till a point where its marginal revenue is greater than or at maximum equal to its marginal cost. In the previous part we found out that marginal revenue is 10 cents. We locate the point on the graph where marginal cost is equal to marginal revenue. Quantity produced is the quantity corresponding to MR=MC=10 cents, as can be observed from the graph.)

c. What is the profit of the company at the optimal point of production?

Profit of the firm at the optimal level can be calculated by subtracting total cost from total revenue. Total revenue is the product of price charged by the firm with quantity sold, whereas total cost can be calculated by multiplying average total cost and quantity traded.

Total revenue =80*10=800

Total cost = average total cost* quantity = 7*80 = 560

Profit = total revenue-total cost =800-560=240

(Process: profit=total revenue –total cost

Total revenue=price*total quantity produced or sold

Total cost =average total cost*quantity sold or produced

From the previous part we know the amount being sold, then using the graph we can find the corresponding average total cost level is 7 cents)

4. The plan of the paper market demand is:

Price Quantity demanded

3.65 500

5.20 450

6.80 400

8.40 350

10.00 300

11.60 250

13.20 200

The market is perfectly competitive and every company has the following cost structure when using the smaller plant size Cost:

Quantity produce Marginal cost Average variable cost Average total cost

200 6.40 7.80 12.80

250 7.00 11.00 7.00

300 7.65 7.10 10.43

350 8.40 7.20 10.06

400 10.00 7.50 10.00

450 12.40 8.00 10.22

500 20.70 9.00 11.00

There are 1,000 companies in the industry

Answering the following questions:

a. Draw the graph of supply and market demand

b. What is the market price?

Market price is the price

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