Question 1

Would a perfectly competitive firm engage in advertising? Explain.

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Question 2

Consider total cost and total revenue given in the following table:

Quantity

0

1

2

3

4

5

6

7

Total Cost

RM8

9

10

11

13

19

27

37

Total Revenue

RM0

8

16

24

32

40

48

56

a)Calculate profit for each quantity. How much should the firm produce to maximize profit?

b)Calculate marginal revenue and marginal cost for each quantity. Graph them.

c)At what quantity do these curves cross?

d)How does this relate to your answer to part (a)?

Calculation:

Quantity

0

1

2

3

4

5

6

7

Total Cost

RM8

9

10

11

13

19

27

37

Total Revenue

RM0

8

16

24

32

40

48

56

Total Profit

Marginal Cost

Marginal Revenue

Graph: