Microeconomics Course Assignment

In fulfillment of Course ePortfolio and CSIS requirement

This Assignment is required and totals 100 points
Part 1 Perfect Competition Analysis
Costs of Production and Profit Maximization Analysis for the Perfect Competitive Market Structure

Total Total Average Average Average

Total Fixed Variable Fixed Variable Total Marginal Market Price Total
Output/h Costs Cost Total Cost Costs Costs Costs Costs Perfect Revenue
r (TFC) (TVC) (TC) (AFC) (AVC) (ATC) (MC) Competition (TR)
0 $ - $ - $6.00 $ -
1 $ 12.00 $ 6.00 $ 18.00 $ 12.00 $6.00 $18.00 $18.00 $6.00 $ 6.00
2 $ 12.00 $ 9.00 $ 21.00 $ 6.00 $4.50 $10.50 $3.00 $6.00 $ 12.00
3 $ 12.00 $ 11.00 $ 23.00 $ 4.00 $3.67 $7.67 $2.00 $6.00 $ 18.00
4 $ 12.00 $ 12.00 $ 24.00 $ 3.00 $3.00 $6.00 $1.00 $6.00 $ 24.00
5 $ 12.00 $ 14.00 $ 26.00 $ 2.40 $2.80 $5.20 $2.00 $6.00 $ 30.00
6 $ 12.00 $ 17.00 $ 29.00 $ 2.00 $2.83 $4.83 $3.00 $6.00 $ 36.00
7 $ 12.00 $ 21.00 $ 33.00 $ 1.71 $3.00 $4.71 $4.00 $6.00 $ 42.00
8 $ 12.00 $ 26.00 $ 38.00 $ 1.50 $3.25 $4.75 $5.00 $6.00 $ 48.00
9 $ 12.00 $ 32.00 $ 44.00 $ 1.33 $3.56 $4.89 $6.00 $6.00 $ 54.00
10 $ 12.00 $ 39.00 $ 51.00 $ 1.20 $3.90 $5.10 $7.00 $6.00 $ 60.00
11 $ 12.00 $ 47.00 $ 59.00 $ 1.09 $4.27 $5.36 $8.00 $6.00 $ 66.00
Correct Level of Output

Total Costs of Production Highest Profit

$70.00
$60.00
$50.00
Marginal Costs = Marginal Revenue
Dollar Costs

$40.00
$30.00
$20.00
$10.00
$-
1 2 3 4 5 6 7 8 9 10 11 12
Output

Total Fixed Costs (TFC) Total Variable Cost (TVC)

Total Cost (TC)

Long Run Profit Maximizing Output Level

Average Total Cost

 D=AR=MR

Price Perfect Competition Ma

Five Characteristics:
1. Many firms produce i
Marginal Cost 2. Large number of buye
3. Sellers and buyers ha
about the produc
4. No barriers to entry o
5. The Seller is a Price ta

Quantity

The ultimate goal of this market structure is to establish an equilibrium between

demand and supply. In perfect competition the market is saturated with suppliers
each firm is a price taker and maximize the profit by mananging the quantity they
produce. In order to maximize profits in a perfectly comptetitive market, firms set
marginal revenue equals to marginal cost (MR=MC). In the long-run, economic profit
cannot be sustained. The new firms in the market causes the demand curve of each
individual firm to shift downard, bringing down the price, the average revenue and
marginal revenue curve. Therefore, in the long-run, the firm will make zero economic
profit.
 Average Costs of Production
$20.00
$18.00
$16.00
$14.00

Production Costs
$12.00
$10.00
$8.00
Total Marginal $6.00
Profit Revenue $4.00
(TP) (MR)
$2.00
$0.00
$-
($12.00) 6 1 2 3 4 5 6 7 8 9 10 11
($9.00) 6 Output
($5.00) 6
$0.00 6 Average Fixed Costs (AFC) Average Variable Costs (AVC)
$4.00 6 Average Total Costs (ATC) Marginal Costs (MC)

$7.00 6
$9.00 6 Profit Maximization
$10.00 6 $70.00
Reve n u e an d C o st s

$10.00 6 $60.00

$9.00 6 $50.00
$40.00
$7.00 6 $30.00
$20.00
$10.00
Highest Profit $-
1 2 3 4 5 6 7 8 9 10 11 12
Output

Total Cost (TC) Total Revenue (TR)

Costs = Marginal Revenue

Measuring Total Profits

20
18
Price and Cost Per Unit

16
14
12
10
8
6
4
2
0
1 2 3 4 5 6 7 8 9 10 11 12
Output

Average Total Costs (ATC) Marginal Costs (MC)

Marginal Revenue (MR)
 6

Price a
4
2
0
1 2 3 4 5 6 7 8 9 10 11 12
Output

Average Total Costs (ATC) Marginal Costs (MC)

Marginal Revenue (MR)

Perfect Competition Market Structure

Five Characteristics:
1. Many firms produce identical products
2. Large number of buyers and sellers
3. Sellers and buyers have all relevant information to make rational decisions
about the product being bought and sold
4. No barriers to entry or exit
5. The Seller is a Price taker