In: Economics
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?
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