Total economic profit and drawing market supply

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The following table represents the hourly output and cost structure for a local pizza shop. The market it perfectly competitive, and the market price of a pizza in the area is $10. Total costs include all explicit and implicit costs.

Output

Total Costs

0

$5.00

1

$9.00

2

$11.00

3

$12.00

4

$14.00

5

$18.00

6

$24.00

7

$32.00

8

$42.00

9

$54.00

10

$68.00

a) Calculate the total revenue and total economic profit at each level of output.

b) Calculate the pizza shop's marginal costs and marginal revenue level of output. What is the profit maximizing rate of output for the pizza shop?

c) Draw a market supply and demand diagram for pizza alongside a corresponding representative firm graph for the pizza shop. With respect to the representative firm graph, label the areas that represent total revenue, total costs, and profit. (For simplicity, only draw the average total cost curve; you need not draw the average variable cost curve.)

d) Now in another set of side by side graphs, show the adjustment that takes place in the long run in both the market graph and the corresponding graph for the representative firm. (Explain your answer.)

Reference no: EM1316579

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