Question

The following table depicts the price and cost structure of a profit-maximizing firm:

Quantity	Price per Unit	Total Cost
0	25	10
1	25	15
2	25	30
3	25	55
4	25	90
5	25	135

a.) What is the firm’s fixed cost?

b.) What is the variable cost of producing two units of output?

c.) What is the marginal cost of the second unit produced?

d.) What is the firm’s total revenue from selling two units of output?

e.) What is the marginal revenue from the second unit sold?

f.) What is the firm’s profit-maximizing level of output?

Answer 1

a) Fixed cost is the cost of production when no output is produced or when production has not started. In the given case, the fixed cost is $10

b) as the total cost is the sum of variable cost and fixed cost so at the second unit of output produced variable cost will be total cost minus fixed cost equals 30-10= 20

c)marginal cost is the additional cost of producing an additional unit of output. For two units of output, marginal cost is 30-15 =15

d) Total revenue is the product of price and output of a good.i.e 25*2 = $50

e) As the price per unit output is constant hence marginal revenue will also be equal to price.i.e. $25

f) Profit-maximizing would be when marginal revenue equals marginal cost implies from the table; at 3 units of output, marginal cost is 55-30=25 equals marginal revenue which is $25.