Example Question - profit/loss

Economic Analysis of a Firm's Cost Schedule

<p>Total Variable Cost (TVC) is calculated by multiplying the output level by the Marginal Cost (MC) for each level of output. Total Cost (TC) is the sum of Total Fixed Cost (TFC) and Total Variable Cost (TVC) for each level of output.</p> <p>For an output of 1:</p> <p>\text{TVC} = \text{Output} \times \text{MC} = 1 \times 10 = 10</p> <p>\text{TC} = \text{TFC} + \text{TVC} = 20 + 10 = 30</p> <p>For an output of 2:</p> <p>\text{TVC} = \text{Output} \times \text{MC} = 2 \times 10 = 20</p> <p>\text{TC} = \text{TFC} + \text{TVC} = 20 + 20 = 40</p> <p>For an output of 3:</p> <p>\text{TVC} = \text{Output} \times \text{MC} = 3 \times 10 = 30</p> <p>\text{TC} = \text{TFC} + \text{TVC} = 20 + 30 = 50</p> <p>For an output of 4:</p> <p>\text{TVC} = \text{Output} \times \text{MC} = 4 \times 10 = 40</p> <p>\text{TC} = \text{TFC} + \text{TVC} = 20 + 40 = 60</p> <p>Total Revenue (TR) at a price of $30 for each level of output:</p> <p>\text{TR} = \text{Price} \times \text{Output}</p> <p>For an output of 1:</p> <p>\text{TR} = 30 \times 1 = 30</p> <p>For an output of 2:</p> <p>\text{TR} = 30 \times 2 = 60</p> <p>For an output of 3:</p> <p>\text{TR} = 30 \times 3 = 90</p> <p>For an output of 4:</p> <p>\text{TR} = 30 \times 4 = 120</p> <p>Profit/Loss at each level of output is calculated by subtracting Total Cost (TC) from Total Revenue (TR).</p> <p>For an output of 1:</p> <p>\text{Profit/Loss} = \text{TR} - \text{TC} = 30 - 30 = 0</p> <p>For an output of 2:</p> <p>\text{Profit/Loss} = \text{TR} - \text{TC} = 60 - 40 = 20</p> <p>For an output of 3:</p> <p>\text{Profit/Loss} = \text{TR} - \text{TC} = 90 - 50 = 40</p> <p>For an output of 4:</p> <p>\text{Profit/Loss} = \text{TR} - \text{TC} = 120 - 60 = 60</p> <p>The firm will be in equilibrium when Total Revenue (TR) equals Total Cost (TC), which occurs at an output level of 1:</p> <p>\text{TR} = \text{TC} = 30</p> <p>Since the question does not provide a time frame, we cannot determine the actual time period in which the firm is operating.</p>