The table below shows the cost of production and output of maize. The price of maize is fixed $20.00. Use the information to answer the questions that follow.
Maize (bags)
Total Variables ($)
Total cost ($)
Total Revenue ($)
0
0
10
0
1
8
w
20
2
10
x
40
3
u
25
y
4
v
32
z
5
28
38
100
a. what is the value of total cost? Give a reason for your answer. b. Calculate the values of u,v,w,x,y and z c. Calculate the profit levels 1 and 4 d. In what market structure is the firm operating? Give a reason for your answer.
Explanation
(a) Total fixed cost is $10.00 because at zero output, cost incurred is $10.00
(b) U = TVC\(_{3}\) = TC\(_{3}\) = 25 - 10 = $15 V = TVC\(_{4}\) = TC\(_{4}\) - TFC = 32 - 10 = $22 W = TC\(_{1}\) = TVC\(_{1}\) + TFC = 8 + 10 = $18 X = TC\(_{2}\) = TVC\(_{2}\) + TFC = 10+ 10 = $20 Y = TR\(_{3}\) = P * Q\(_{3}\) = $20 * 3 = $60 X = TC\(_{2}\) = TVC\(_{2}\) + TFC = 10 + 10 = $20 Y = TR\(_{3}\) = P * Q\(_{3}\) = $20 * 3 = $60 Z = TR\(_{4}\) = P * Q\(_{4}\) = $20 * 4 = $80
(c) Profit is TR – TC At output level 1, profit = $20 - $18 = $2.00 At output level 4, profit = $80.00 - $32.00 = $48.00
(d) Perfect competition/market because price is fixed at $20.00
