Question

In: Economics

Use the table to answer the following questions Output Total Revenue Total Cost 0 0 30...

Use the table to answer the following questions

Output Total Revenue Total Cost
0 0 30
1 40 55
2 80 98
3 120 125
4 160 152
5 200 180

a) What is the price of the product? b) What is the marginal revenue from the fourth unit output? c) What is the profit, when firm produce 5 units?

Solutions

Expert Solution

In order to determine the price, we shall calculate marginal revenue.

Output total revenue marginal revenue
0 0 -
1 40 40
2 80 40
3 120 40
4 160 40
5 200 40

Marginal revenue is the revenue earned from the sale of an additional unit of output . It is calculated as-

Marginal revenue of nth unit= Total revenue of nth unit- Total revenue of( n-1)th unit

a)From the above table we can see that the Marginal revenue earned from each additional unit of output is same and constant. It means that the price of the product is same and constant at all levels of output. When Marginal revenue (MR) is same and constant at all levels of output, Price is equal to marginal revenue (MR). This is because when price is same at every level of output, the Marginal revenue earned from the sale of an additional unit of output is same as that of price and is constant. Hence, P=MR and the price of the product is 40.

b) Marginal revenue is the revenue earned from the sale of an additional unit of output. It is calculated as-

Marginal revenue of nth unit= Total revenue of nth unit - Total revenue of( n-1)th unit

For 4th unit of output-

Marginal revenue of 4th unit= total revenue of 4 units- total revenue of 3 units

Marginal revenue of 4th unit= 160-120= 40

For 5th unit of output-

Marginal revenue of 5th unit of output= total revenue of 5 units- total revenue of 4 units

Marginal revenue of 5th unit= 200-160= 40

Hence, we can see that marginal revenue from the fourth unit of output is 40.

c) When the firm produces 5 units of output, total cost of producing 5 units is 180 and total revenue earned from the sale of 5 units is 200. As total revenue>total cost, firm is earning Profit.

Profit= total revenue- total cost

Profit= 200-180

profit= 20

Hence, when the firm produces 5 units of output, profit is 20.

Rahul Sunny answered 2 years ago
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