Question

The firm's demand is as follows:				Total variable costs are:
	Price	Quantity			Quantity	TVC
	$18	2			2	$15
	16	3			3	21
	15	4			4	27
	14	5			5	32
	13	6			6	37
	12	7			7	44
	10	8			8	52
				Fixed costs are $15
				at all quantities

1. What is the Marginal Revenue at a quantity of 5?

2, What is the Marginal Cost at a quantity of 7?

3. Using the MR-MC rule, what is the profit maximizing quantity this firm should produce?

4. How much profit do they make at this quantity?

Answer 1

Ans.1-

Total revenue when Quantity =4 is 4*15 = 60

Total revenue when Quantity =5 is 5* 14 = 70

therefore, marginal revenue of 5th unit = 70-60 = 10

Ans.2-

TVC at quantity of 6 = 37

TVC at quantity of 7 = 44

Therefore, MC at cost of 7 = 44-37 = 7

Ans.3-

Firm will produce output as long as MR exceeds MC which occurs till 6 units of output.Therefore, firm will produce 6 units of output.

Ans.4-

At 6 units of output :

TR = P*Q = 6*13 = 78

TC = TVC + TFC = 37+15 = 52

Thus, profit = TR-TC = 78-52 = 26