The table below shows the cost of production and output of maize. The price of maize is fixed $20.00. Use the information to answer the questions that follow.
| Maize (bags) | Total Variables ($) | Total cost ($) | Total Revenue ($) |
| 0 | 0 | 10 | 0 |
| 1 | 8 | w | 20 |
| 2 | 10 | x | 40 |
| 3 | u | 25 | y |
| 4 | v | 32 | z |
| 5 | 28 | 38 | 100 |
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.
Explanation
(a) Total cost is $10.00 because, at zero output, the cost incurred is $10.00
(b) U = TVC\(_{3}\) = TC\(_{3}\)
= 25 - 10 = $15
V = TVC\(_{4}\) = TC\(_{4}\) - TFC
= 32 - 10 = $22
W = TC\(_{1}\) = TVC\(_{1}\) + TFC
= 8 + 10 = $18
X = TC\(_{2}\) = TVC\(_{2}\) + TFC
= 10+ 10 = $20
Y = TR\(_{3}\) = P * Q\(_{3}\)
= $20 * 3 = $60
X = TC\(_{2}\) = TVC\(_{2}\) + TFC
= 10 + 10 = $20
Y = TR\(_{3}\) = P * Q\(_{3}\)
= $20 * 3 = $60
Z = TR\(_{4}\) = P * Q\(_{4}\)
= $20 * 4 = $80
(c) Profit is TR – TC
At output level 1, profit = $20 - $18 = $2.00
At output level 4, profit = $80.00 - $32.00 = $48.00
(d) Perfect competition/market because the price is fixed at $20.00