Question 2

A firm has the following cost structure

Units produced Q 0, 1, 2, 3, 4, 5, 6, 7

TFC (N$)100, 100, 100, 100, 100, 100, 100, 100

TVC (N$)0, 50, 120, 180, 300, 400, 470, 520

TC (N$)

AC (N$)

MC (N$)

Total Revenue (N$)

Profit (N$)

You will find it helpful to complete the table above before using your calculations to give your answers to the following questions.

a. What is the firm's :

i. Average cost of producing each output?

ii. Marginal cost of producing each output?

b. If the industry price is fixed at N$120, calculate the firm's

i. Profit maximizing level of output

ii. Maximum achievable profit.