Seminar 10.1
Seminar 10.1
Seminar 10.1
a. Mark on the diagram the output at which diminishing returns set in.
b. Assume that the firm is a price taker and faces a market price of £60 per unit.
Draw the firm’s AR and MR curves on the above diagram.
50
Costs and Revenues (£).
40
30
Total Revenue
Total Cost
20
10
0
0 10 20 30 40 50 60 70 80 90
Quantity
c. Draw the total profit TΠ curve over the range of output where positive profit is
made.
Average Marginal
Quantity Average Cost Marginal Cost Revenue Revenue
(units) (£) (£) (£) (£)
100 4.80 1.40 3.20 3.20
200 3.60 0.80 3.20 3.20
300 2.90 0.85 3.20 3.20
400 2.45 1.30 3.20 3.20
500 2.30 2.30 3.20 3.20
600 2.55 4.00 3.20 3.20
700 3.05 6.30 3.20 3.20
f. Shade in the area representing maximum total profit in the above diagram.
Total Variable
Quantity Fixed Cost Total Cost Profit/Loss
Revenue Cost
(units) (£) (£) (£)
(£) (£)
0
10
15
20
25
30
37
43
b. Using the formula below, calculate the breakeven point for Biscoe.
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠
Breakeven = 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒−𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡