Question

Suppose rocking-chair manufacturing is a perfectly competitive industry in which there are 1,000 identical firms. Each firm’s total cost is related to output per day as follows:
Quantity Total cost Quantity Total cost
0 $500 5 $2,200
1 $1,000 6 $2,700
2 $1,300 7 $3,300
3 $1,500 8 $4,400
4 $1,800


1. Prepare a table that shows total variable cost, average total cost, and marginal cost at each level of output.
2. Plot the average total cost, average variable cost, and marginal cost curves for a single firm (remember that valuesfor marginal cost are plotted at the midpoint of the respective intervals).
3. What is the firm’s supply curve? How many chairs would the firm produce at prices of $350, $450, $550, and $650? (In computing quantities, assume that a firm produces a certain number of completed chairs each day; it does not produce fractions of a chair on any one day.)
4. Suppose the demand curve in the market for rocking chairs is given by the following table:
Price Quantity of chairs Demanded/day Price Quantity of chairs Demanded/day
$650 5 000 $450 7 000
$550 6 000 $350 8 000


5. Plot the market demand curve for chairs. Compute and plot the market supply curve, using the information you obtained for a single firm in part (c). What is the equilibrium price? The equilibrium quantity?
6. Given your solution in part (d), plot the total revenue and total cost curves for a single firm. Does your graph correspond to your solution in part (c)? Explain.

Answer 1

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