How to find Q* and the Profit (p)? From the table below in pic.

Question

2. Consider the following table when answer the questions below.
Q TC  AFC    AVC  ATC  MC
0 100 - - - -
1 150 100.00 50.00 150.00 50
2 175 50.00 37.50 87.50 25
3 190 33.33 30.00 63.33 15
4 210 25.00 27.50 52.50 20
5 240 20.00 28.00 48.00 30
6 280 16.67 30.00 46.67 40
7 330 14.29 32.86 47.14 50
8 390 12.50 36.25 48.75 60


a. Suppose the market price is equal to P=$40. How many units should the firm produce and what will its profit be?



b. Suppose the market price drops to P=$20. Should the firm shut down? Explain your answer by discussing the firm’s profits or losses.

Answer 1

The firm should produce as many widgets as possible to maximize profit.  If the price is fixed at $40, this usually mean producing sufficient number such that the marginal cost is equal to the price.  In this case, this suggests a quantity of 6. The net profit (= revenue - TC) is -$40 due primarily to the $100 fixed cost. Producing more such as 7 or 8 means that each additional unit produced and sold would cost more than the price it could be sold for or $40.  Another way to look at it is that the net profit drops to -$50 at Q=7 and -$70 at Q=8, so there is no economic incentive produce more than 6.