The table below shows the cost of production and output of maize. The price of...
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 cost is $10.00 because, at zero output, the 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 the price is fixed at $20.00