I.
ASSIGNMENT
A. Complete the following table and accomplish the task that follow.
Output TFC TVC TC MC AC
1 20 2 22 2 22
2 20 6 26 4 13
3 20 12 32 6 10.67
4 20 20 40 8 10
5 20 30 50 10 10
6 20 42 62 12 10.33
7 20 56 76 14 10.86
8 20 72 92 16 11.50
9 20 90 110 18 12.22
10 20 110 130 20 13
1. Construct the TVC, TC, and AC schedules above.
2. What is the maximum profit output when price is 12? Output 6 if it is in Perfect Competition.
Total Revenue = Price x Quantity.
TR = 12 x 6 units = 72
Profit = Total Revenue – Total Cost
=72-62
Total Maximum Profit = 10
Compute the total revenue and the profit. Compute the profit using the average cost figures.
PRICE TR TP
12 12 -10
12 24 11
12 36 25.33
12 48 38
12 60 38
12 72 61.14
12 84 73.14
12 96 84.50
12 108 95.78
12 120 107
If it is Profit using AC Figures, then total maximum profit is 10.02.
Profit = Total Revenue – Average Costs
=72- (10.33 x 6)
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Total Maximum Profit = 10.02
3. Using the MC figure, compute the change in profit and the new profit level with an additional
unit produced beyond the maximum profit.
Instance: Q = 11; P = 22; Let: TVC = 132; TC = 152
Profit = (P x Q) – TC
= (22 x 11) – 152
New Profit = 90
Change in Profit = New Profit – Old Profit
= 90 – 70
=20 or 28.57% (20/70 x 100%)
4. Again, using the MC figure, compute the same variable with output reduced by one (1) unit from
the said point.
Let; Q = 9; P = 18;
Profit = (P x Q) – TVC
= (9 x 18) – 110
New Profit = 52
Change in Profit = New Profit – Old Profit
= 52 – 70
= -18 or 25.71% (-18/70 x 100%)
B. Illustrate the effects of the following on the following on the MC, AC, and MR curves.
a. Decrease in selling price
Decrease in Selling Price will increase the costs of the
firm and decrease in its profits. Hence, MR curve will
fall down. MC and AC curves have no effects due to its
costs are constant.
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b. Increase in wages and salaries
Increase in wages and salary will
Increase the marginal and average costs
as Variable Costs will increase the MC
and AC curves. Hence, it will be caused
to shift upwards.
c. Decreasing efficiency of machines because of age
Decrease in efficiency will result to increase the cost incremental to production. Thus,
will lead the same effect in AC and MC given in scenario (b). However, it will lower down its
revenue and MR will shift downward [see figure in given (a)].
C. Using the MC and MR curves, predict the effect of the following on profit.
a. Increase in material input prices
Increase in the input prices will increase the Total
Cost, hence, MC will shift upwards. However, MR
curve will fall down due to costs incurred on its
input prices.
b. Higher price
Higher Price would mean that it will be Higher in
Revenue. Therefore, MR curve shifts upwards.
c. Less output but the same price
Less output (units) but same price means that Revenue
will decrease so the MR Curve will shift downwards.
d. More efficient machine
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More efficient machine will reduce its costs and increase productivity and production rate.
Hence, due to reduction in costs, MR curve will shift upward. There are no effects in MC
curve.
Choose the letter of the correct answer.
__ D___ 1. The use of something should pay for its opportunity foregone to indicate _____.
a. Addition
b. Reduction
c. Change
d. Net change
___ D__ 2. Based on the foregoing, the best alternative is hat which _____.
a. Gives the most benefit
b. Gives the most addition to benefit
c. Has the most opportunity cost
d. B and c
e. A and c
___B__ 3. It causes total cost to change with output.
a. Fixed cost
b. Variable cost
c. Average variable cost
d. Average fixed cost
___A__ 4. Average fixed cost _____ as output decreases.
a. Increases
b. Decrease
c. Remains constant
d. None of the above
___A__ 5. Average cost eventually increases as output decreases because of _____.
a. Variable cost
b. Fixed cost
c. Opportunity cost
d. Imputed cost
__D___ 6. The condition that underlies the shape of the average cost curve.
a. Returns to scale
b. Law of Diminishing returns
c. Shutdown price
d. Long-run cost curves
__A___ 7. When marginal cost increases, marginal product in the production function _____.
a. Decreases
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b. Increases
c. Does not change
d. Is zero
__A___ 8. Given a certain price, profit decreases when the output level causes MC to be greater than MR
affecting _____.
a. Revenue and variable cost
b. Revenue and fixed cost
c. Least of the lowest cost
d. Fixed cost
__A___ 9. The most efficient plant is characterized by _____.
a. Least cost
b. Bigger capacity
c. Least of the lowest cost
d. More production
__A___ 10. Producing short of MR=MC means lower profit because _____.
a. MC is greater than MR
b. MR is greater than MC
c. Revenue is less
d. Of lower cost
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