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EC 200
4. Two tables below contain information about the total cost of the firm and the demand it is facing.
Cost Data
Output Total Cost, $
100
200
300
400
500
Demand Data
Price, $
Quantity
demanded
6
100
5.50
200
5
300
4.50
400
4
500
1500
1550
1650
1800
2250
a. Can you tell whether this firm operates in a perfectly competitive industry? Explain your answer.
Yes, we can, and no, this market is not perfectly competitive. In perfect competition the firm would
be able to sell its entire output at the same price regardless of the number of units it produces (the
demand curve is horizontal). In this case, the demand curve is clearly downward sloping in order
to sell more the firm has to lower the price.
b. Create and fill marginal revenue and marginal cost columns.
The marginal cost is the difference between the two successive entries in the total cost column. The
marginal revenue is the difference between the two successive entries in the total revenue column.
We need to make one extra step and calculate total revenue, which is equal to the product of
quantity and price.
Cost Data
Output Total Cost, $
100
200
300
400
500
1500
1550
1650
1800
2250
MC, $
Price, $
???
50
100
150
450
6
5.50
5
4.50
4
Demand Data
Quantity
demanded
100
200
300
400
500
TR, $
MR, $
600
1100
1500
1800
2000
600
500
400
300
200