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Question Profit Maximization for a Perfectly Competitive Firm Goal: To determine how much candy George’s company should produce to make the maximum profit it can possibly make. What you must know in order to successfully answer this question The definition of profit and how to calculate it. The definitions of Total Cost (TC), Total Variable Costs (TVC) Total Fixed Costs (TFC), and Marginal Costs (MC) and how to calculate them. The definitions of Total Revenue (TR) and Marginal Revenue (MR), how to calculate them, and how MR relates to product price in perfect competition. The profit-maximizing rule, using MR and MC (as opposed to TC and TR) The shutdown rule Facts: George Brown owns and operates a candy factory in a perfectly competitive industry. George Brown wants to maximize his company’s profits. George Brown’s candy factory has the following monthly costs: Building rental: $2,500 per month Equipment rental: $3,200 per month Assignment Complete the above table. (5 points) If the wholesale price of a package of candy is $.65, what quantity would you recommend George Brown produce? Use the MR=MC profit-maximizing rule to determine your answer. Calculate the total profit or loss earned. (5 points) What should the volume of production (output) be if the candy sold for $.30 a package? (5 points)

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Question

Profit Maximization for a Perfectly Competitive FirmGoal: To determine

how much candy George’s company should produce to make the maximum profit it can possibly make.

What you must know in order to successfully answer this  question

  • The definition of profit and how to calculate it.
  • The definitions of Total Cost (TC), Total Variable Costs (TVC) Total Fixed Costs (TFC), and Marginal Costs (MC) and how to calculate them.
  • The definitions of Total Revenue (TR) and Marginal Revenue (MR), how to calculate them, and how MR relates to product price in perfect competition.
  • The profit-maximizing rule, using MR and MC (as opposed to TC and TR)
  • The shutdown rule

Facts:

  • George Brown owns and operates a candy factory in a perfectly competitive industry.
  • George Brown wants to maximize his company’s profits.

George Brown’s candy factory has the following monthly costs:

  • Building rental:    $2,500 per month
  • Equipment rental: $3,200 per month

Assignment

  1. Complete the above table. (5 points)
  2. If the wholesale price of a package of candy is $.65, what quantity would you recommend George Brown produce? Use the MR=MC profit-maximizing rule to determine your answer.  Calculate the total profit or loss earned. (5 points)
  3. What should the volume of production (output) be if the candy sold for $.30 a package? (5 points)
 
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