At 110 units of output, marginal revenue is $6, the marginal cost is $6, and the...

At 110 units of output, marginal revenue is $6, the marginal cost is $6, and the average cost is $5. If consumers demand 110 units of output when the price is $9, what is the expected profit?

Solutions

Expert Solution

Solution:

Profit = total revenue - total cost

Also, total revenue = price*output ; total cost = average cost*output

So, profit = price*output - average cost*output

Profit = (price - average cost)*output

Then, given the information, at 110 units of output, expected profit = (9 - 5)*110 = 4*110 = $440

(Note that at 110 units of output, marginal revenue = marginal cost (= $6) indicating a profit maximizing level for the firm).

Rahul Sunny answered 2 years ago

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