Total Hourly Output and Sales of Pizzas Total Hourly Cost ($) 0 5 1 9 2 11 3 12
ID: 1245972 • Letter: T
Question
Total Hourly Output and Sales of Pizzas
Total Hourly Cost ($)
0
5
1
9
2
11
3
12
4
14
5
18
6
24
7
32
8
42
9
54
10
68
Total Hourly Output and Sales of Pizzas
Total Hourly Cost ($)
0
5
1
9
2
11
3
12
4
14
5
18
6
24
7
32
8
42
9
54
10
68
Explanation / Answer
Total revenue can be calculated by multiplying the price ($10) by each unit of output. So: Unit 0 -> TR = 0 1 -> TR= 1*10=10 2 -> TR=2*10=20 3 -> TR=30 4 -> TR=40 5 -> TR=50 6 -> TR=60 7 -> TR=70 8 -> TR=80 9 -> TR=90 10 -> TR=100 Then, we see that profit is simply the revenue minus the cost. So, since the cost is given, we'll just subtract that from the total revenues we have above. 0 -> TR-C = 0-5 = -5 1 -> TR-C = 10-9= 1 2 -> TR-C = 20-11=9 3 -> TR-C= 30-12=18 4 -> TR-C = 40-14=26 5 -> TR-C = 50-18=32 6 -> TR-C = 60-24 =36 7 -> TR-C = 70-32 =38 8 -> TR-C = 80-42 = 38 9 -> TR-C = 90-54 = 36 10 -> TR-C=100-68= 32 We know that firms in perfect competition will have a zero profit in the long run. Thus, if the pizza store always sells one or more, we see that it will also make a profit. This means that this is a case of short run equilibrium. What's going to happen is that other people will enter the market because they see pizza shops like this one making profit. Thus, it will drive up the supply of pizzas and thus lower the price and cause the profits to go down. In the long run, the equilibrium will be at a profit of zero.