Question: The table below represents hourly output for a Widget shop. The market is perfectly competitive. The market price for widgets in this area is $10.

Create an extension to the table below. Calculate the total revenue and Total economic profit, marginal cost, marginal revenue at each rate of output. (20 points)

Output and Sales Total Hourly

Of Widgets Cost ($)
0 5
1 9

2 11
3 12
4 14
5 18
6 24

7 32

8 42

9 54

10 68

(a) Assuming the Widget shop produces and sells one widget per hour, is this a short-run or a long-run equilibrium. Why? (10 points)

(b) Based on the marginal analysis, what is the profit-maximizing rate of output? (10
points)

(c) Draw the short-run MC and MR curves and illustrate the determination of its profit maximizing output rate. (25 points)

(d) If the market price drops to $5 per Widget, should the shop continue to make widgets or will it maximize it’s profit by shutting down. (Show your work on a new chart and show it graphically on how you arrive at your answer.) (35 points)