Question

The blue curve on the following graph represents the demand curve facing a firm that can set its own prices.

Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.

Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.

On the graph input tool, change the number found in the Quantity Demanded field to determine the prices that correspond to the production of 0, 10, 20, 25, 30, 40, and 50 units of output. Calculate the total revenue for each of these production levels. Then, on the following graph, use the green points (triangle symbol) to plot the results.

Calculate the total revenue if the firm produces 10 versus 9 units. Then, calculate the marginal revenue of the 10th unit produced.

The marginal revenue of the 10th unit produced is

.

Calculate the total revenue if the firm produces 20 versus 19 units. Then, calculate the marginal revenue of the 20th unit produced.

The marginal revenue of the 20th unit produced is

.

Based on your answers from the previous question, and assuming that the marginal revenue curve is a straight line, use the black line (plus symbol) to plot the firm's marginal revenue curve on the following graph. (Round all values to the nearest increment of 20.)

Comparing your total revenue graph to your marginal revenue graph, you can see that total revenue is   at the output at which marginal revenue is equal to zero.

Answer 1

Q	P	TR	MR
0	100	0
10	80	800	80
20	60	1200	40
25	50	1250	10
30	40	1200	-10
40	20	800	-40
50	0	0	-80

TR = P x Q

MR (nth unit) = (TR (n units) - TR ((n-1) units)/(Qn - Qn-1)

The marginal revenue of the 10th unit produced is = 10 x 80 - 9 x 82 = $ 62

The marginal revenue of the 20th unit produced is = 20 x 60 - 19 x 62 = $ 22

.

You can see that total revenue is maximum at the output at which marginal revenue is equal to zero.