2. Suppose a firm that manufactures bicycles has the following cost structure

a. How mu does this firm have in fixed costs?

b. Using graph paper or a computer program, graph the total cost curve for this firm. Suppose that bicycles sell for $200 ea, and the firm is a price taker. Create a table showing the marginal cost, total cost, marginal revenue, total revenue (price × quantity), and total profit (total revenue – total cost) at ea level of production.

c. Add a total revenue curve to the graph that you created in (b). Indicate with arrows the approximate quantity at whi the vertical distance between the two curves is the greatest.

d. Would the firm make a profit by producing and selling only one bicycle? Would one bicycle be the best output level for the firm? What is the output level that maximizes profits?

Transcribed Image Text:

Quantity of bicycles 0 1 Total cost ($) 50 100 2 200 400 4 800