Microeconomics, Module 5, “The Behavior of Firms”

Homework assignment

(The attached PDF file has better formatting.)

Profit Maximization

A firm faces a demand curve of P = 130 – 5Q. The marginal cost for this firm is 20 + Q. The fixed costs are 500. Assume that the firm produces a quantity and charges a price to maximize profits.

A.    What is the marginal revenue curve facing the firm?
B.    What is the quantity produced by the firm?
C.    What is the equilibrium price charged by the firm?
D.    What are the total variable costs of the firm?
E.    What are the total costs of the firm?
F.    What is the total revenue of the firm?
G.    What is the net profit of the firm?

I mostly agree with Bjabb:

a) MR = 135-10Q
b) 10
c) 80
d) 21+22+...+30 = 255
e) 500+255=755
f) 800
g) 800-755=45

My one difference with Bjabb is the 500 vs 520 in part e. In the book, example 5.3 (I think) shows that the marginal cost isn't counted at Q=0.

[NEAS: The 255 total variable cost is correct for the discrete analysis.  See also the Jacob - Rachel dialogue below.]