Question

You run a game-day shuttle service for parking services for the local ball club. Suppose you are compensated $16 per customer, per ride. In other words, your marginal revenue is $16. Your costs for different customer loads are summarized in the following table. For each customer load, calculate both the marginal cost and the average cost. Then answer the question that follows. Note: Round your answers to the nearest cent. Customers Total Cost Marginal Cost Average Cost ($) ($ per customer) ($ per customer) 1 $30 $ $ 2 $34 $ $ 3 $42 $ $ 4 $54 $ $ 5 $70 $ $ 6 $90 $ $ 7 $114 $ $ 8 $142 $ In order to maximize profits, you should carry customers per load.

Answer 1

marginal revenue = $16

for maximising profit: Marginal Revenue(MR) = Marginal Cost(MC)

customer             cost                      marginal cost                   average cost

1                         30                                                                  30

2                         34                              4                                17    

3                         42                              8                                   14

4                         54                             12                                 13.5

5                         70                             16                                  14

6                         90                             20                                  15

7                         114                            24                                 16.28

8                         142                           28                                  17.75

for maximising profit, you should carry 6 customers.