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Chapter 8: Q3 (page 210)

Look at Table 8.13. What would happen to the firm鈥檚 profits if the market price increases to $6 per pack of raspberries?

Short Answer

Expert verified

No change will happen to firm's profits if market price change to $6.

Step by step solution

01

Definitions 

Price is the amount of money charged for a good or service.

Total revenue is the total amount received from sale of all units of goods and services

So, Total Revenue = Price x Quantity

02

Numerical Solution

Price = Total Revenue / Quantity

Price at following units :

  • 10 units = 60/ 10 = 6
  • 20 units = 120/ 20 = 6
  • 30 units = 180/ 30 = 6
  • 40 units = 240/ 40 = 6
  • 50 units = 300/ 50 = 6
  • 60 units = 360/ 60 = 6
  • 70 units = 420/ 70 = 6
  • 80 units = 480 / 80 = 6
  • 90 units = 540 / 90 = 6
  • 100 units = 600 / 100 = 6

As price is already 6, there will be no change in profit, ie = Total Revenue - Total Cost

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Most popular questions from this chapter

Firms in a perfectly competitive market are said to be 鈥減rice takers鈥濃�攖hat is, once the market determines an equilibrium price for the product, firms must accept this price. If you sell a product in a perfectly competitive market, but you are not happy with its price, would you raise the price, even by a cent?

Perfectly competitive firm Doggies Paradise Inc. sells winter coats for dogs. Dog coats sell for \(72 each. The fixed costs of production are \)100. The total variable costs are \(64 for one unit, \)84 for two units, \(114 for three units, \)184 for four units, and $270 for five units. In the form of a table, calculate total revenue, marginal revenue, total cost and marginal cost for each output level (one to five units). On one diagram, sketch the total revenue and total cost curves. On another diagram, sketch the marginal revenue and marginal cost curves. What is the profit-maximizing quantity?

Why will profits for firms in a perfectly competitive industry tend to vanish in the long run?

In the argument for why perfect competition is allocatively efficient, the price that people are willing to pay represents the gains to society and the marginal cost to the firm represents the costs to society. Can you think of some social costs or issues that are not included in the marginal cost to the firm? Or some social gains that are not included in what people pay for a good?

A firm鈥檚 marginal cost curve above the average variable cost curve is equal to the firm鈥檚 individual supply curve. This means that every time a firm receives a price from the market it will be willing to supply the amount of output where the price equals marginal cost. What happens to the firm鈥檚 individual supply curve if marginal costs increase?
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