Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

200 PRICE AND OUTPUT UNDER PERFECT COMPETITION [CHAP. 8
(c)
Fig. 8-13
(d ) The firm is in short-run equilibrium at point D (and D 0 ) where it maximizes short-run total profits. Note that at
outputs slightly smaller than 750 units, the slope of the TR curve is greater than the slope of the STC curve; as
a result the vertical distance between the TR curve and the STC curve (i.e., total profit) increases as output
expands to 750 units. Similarly, for outputs slightly larger than 750 units, the slope of the STC curve is
greater than the slope of the TR curve, and so total profit would increase as output is reduced to 750 units.
If the STC curve was above the TR curve at every point, the firm would try to minimize total losses since
it could not possibly make profits.
SHORT-RUN EQUILIBRIUM OF THE FIRM: MARGINAL APPROACH
8.10 From Table 8.6, (a) find the MR, the MC, the AC, the profit per unit, and the total profits at each level of
output; (b) on one set of axes, plot the d, MR, MC, and AC schedules of the firm and label A 0 the point
where total losses are maximized, B 0 and E 0 the break-even points, C 0 the point where profit per unit is
maximized, and D 0 the point where total profits are maximized; and (c) comment on the graph drawn in
part (b).
(a) Table 8.7
(1)
Q
(2)
P ¼ MR ($)
(3)
MC ($)
(4)
AC ($)
(5)
Profit/Unit ($)
(6)
Total Profit ($)
100 4 6.00 10.00 –6.00 –600
200 4 3.00 6.50 –2.50 –500
300 4 2.00 5.00 –1.00 –300
400 4 1.00 4.00 0 0
500 4 1.00 3.40 þ0.60 þ300
600 4 1.50 3.08 þ0.92 þ552
700 4 2.50 3.00 þ1.00 þ700
750 4 (4.00) 3.02 þ0.98 þ735
800 4 4.00 3.13 þ0.87 þ696
900 4 11.00 4.00 0 0
The MC of $4.00 at 750 units of output was obtained by finding the change in TC per unit increase in output, when
output is increased from 700 to 800 units. The total profits found above differ slightly (in two instances) from the
figures of Table 8.6 because of rounding errors. Since P ¼ MR, this firm is in a perfectly competitive market.