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.
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.
a. The value of total cost at output level 0 is $10.00, at output level 1 is $18.00 ($10.00 + $8.00), at output level 2 is $20.00 ($10.00 + $10.00), at output level 3 is $25.00, and at output level 4 is $32.00.
b. By using the information given in the table, we can calculate the values of u, v, w, x, y, and z.
u = $17.00 ($25.00 - $8.00)
v = $24.00 ($32.00 - $8.00)
w = $18.00 ($20.00 - $2.00)
x = $20.00
y = $75.00 ($100.00 - $25.00)
z = $68.00 ($100.00 - $32.00)
c. The profit levels at output level 1 and 4 are $2.00 ($20.00 - $18.00) and $36.00 ($68.00 - $32.00) respectively.
d. The firm is operating in a perfectly competitive market structure. The reason for this is that the price of maize is fixed at $20.00, indicating that the firm has no control over the price and is a price taker, which is a characteristic of a perfectly competitive market. Additionally, the firm is producing a homogeneous product, maize, which is another characteristic of a perfectly competitive market.