Cost, Revenue, and Perfect Competition

This economics assignment explores the concepts of cost and revenue analysis for a firm operating under different output levels. It examines how to determine the profit-maximizing level of output where marginal revenue equals marginal cost. Furthermore, the assignment delves into the theoretical framework of perfect competition, highlighting its significance as a benchmark model despite its limited real-world applicability. The analysis includes tables and graphs illustrating the relationships between various economic variables.

Running head: PRINCIPLES OF ECONOMICS
PRINCIPLES OF ECONOMICS
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Introduction......................................................................................................................................3
Question1.........................................................................................................................................3
Question 2........................................................................................................................................4
Conclusion.......................................................................................................................................5
References........................................................................................................................................6

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Introduction
The report focuses on the evaluation of cost and revenue of a particular firm at each level
of output. The profit maximizing level of output is also discussed in this report. The cost and
revenue curves are also plotted in the graph in this study. This study also highlights about why
the economist study perfect competition given that this type of competition does not occur in the
real world.
Question1
The table below reflects Total cost (TC), marginal Cost (MC), Total Revenue (TR) and
Marginal Revenue (TR) for each level of output. Total cost indicates the total expenditure that is
incurred in reaching specific output level (Edwards 2017). It is calculated by multiplying average
cost to total output. Marginal cost (MC) refers to change in total cost that occurs from producing
one extra item. TR refers to total receipts a retailer gains from selling products to the purchasers.
Given the AR, the TR is calculated by multiplying AR with output. As MR refers to the extra
revenue that is produced by raising goods sales by one unit, it is calculated by change in TR to
total output.
Output AC TC MC AR TR MR
1 10 10 15 15
2 8 16 6 14.5 29 14
3 7 21 5 14 42 13
4 6.3 25.2 4.2 13.5 54 12
5 6 30 4.8 13 65 11
6 6.1 36.6 6.6 12.5 75 10
7 6.5 45.5 8.9 12 84 9
8 7.2 57.6 12.1 11.5 92 8
9 8 72 14.4 11 99 7
10 9 90 18 10.5 105 6

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b) The profit maximizing level of output occurs in the firm when marginal revenue (MR)
becomes equal to marginal cost (MC) (Franko 2017). From the above table it can be seen that,
profit maximization occurs at output level 7 where MR=MC=9.
c)
0 2 4 6 8 10 12
0
2
4
6
8
10
12
14
16
18
20 AC, MC, AR&MR
AC
MC
AR
MR
Output
Cost curve
7
AC=6.5
AR=12
MR=M
C
d)From the above figure figure it can be seen that, at profit maximizing level of output 7, AC is
6.5 and AR is 12.
Question 2
Perfect competition occurred from the Walrasian notion of equilibrium. The economists
usually studies perfect competition as they use this as benchmark as they thinks that real markets
could be judged in empirical way (Baumol and Blinder 2015). This perfect competition
framework is basically used in economics in order to explain as well as predict the individual
actor’s actions. Though this form of competition does not occur in real world, economist

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becomes interested in studying this model as its assumptions are strong. These assumptions
include-
 There are many sellers in this market and each firm is price taker
 The buyers donot have control over price of product
 There are no barriers in entry and exit
Studying this type of market structure us useful to economist as it provides role model for
understanding different market framework that exists in real world (Mankiw 2014). It also
provides an idea about the allocation of resources among the competing ends.
Conclusion
The above study concludes that perfect competition has huge significance in the market
and is also useful for the economist. In addition, the cost and revenue evaluation also gives an
idea about the profit maximization level of the firm.

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References
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Cengage
Learning.
Edwards, W.A., 2017. Principles of Microeconomics.
Franko, P.M., 2017. Principles of Microeconomics.
Mankiw, N.G., 2014. Principles of macroeconomics. Cengage Learning.