Question

2. Complete a table for Q, Price, TC, MC, MR and profits.

Start the price at the number of letters in your first and last names combined for Q = 1 (16 letters), and then reduce the price as Q increases.

For costs, begin with TC = 6 at Q = 1, then you may use any numbers you like for costs. You may need to play around with the numbers to make this work out.

Show that MR = MC at profit maximization. Graph MR, MC and Price and show the profit maximizing level of output. (You don’t need to graph ATC and show the profit rectangle).

Answer 1

Under the MR-MC approach, there are 2 necessary conditions;

1) Marginal cost = Marginal revenue

2) Marginal cost > Marginal revenue after MR=MC level.

Now, coming to the table;

Price	Quantity	Total Cost	Total Revenue	Marginal Cost	Marginal Revenue	Profit
16	1	6	16	-	16	10
15	2	17	30	11	14	13
14	3	26	42	9	12	16
13	4	34	52	8	10	18
12	5	40	60	6	8	20
11	6	45	66	5	6	21
10	7	48	70	3	4	22
9	8	50	72	2	2	22
8	9	53	72	3	0	19
7	10	58	70	5	-2	12
6	11	65	66	7	-4	1
5	12	73	60	8	-6	-13
4	13	82	52	9	-8	-30
3	14	93	42	11	-10	-51
2	15	106	30	13	-12	-76
1	16	121	16	15	-14	-105

TR= P * Q, MC = Addition to TC, MR = Addition to TR, Profits = TR - TC

Graph:

Profit maximizing level of price and output would be at the intersection of MR and MC where MR = MC and MC rises above MR after the MR=MC level.

In this above case, profit maximizing level of output is 8 units and price is 9, indicated at Point E (8,9), where point E is on the AR ( Demand Curve).

Therefore, the profit maximizing level of price and output are 9 and 8 respectively.