Question

4. Complete the following table and answer the accompanying questions. Note: The missing variables can be computed using the mathematical definitions. This computation is best completed in MS Excel. Copy and paste the resulting table into this Word document.

Labor (control variable)	Total Revenue (Total Benefit) B(Q)	Total Cost C(Q)	Profit (Total Benefit)	Marginal Revenue (Marginal Benefit)MB(Q)	Marginal Cost MC(Q)
100	1210	900
101	1410				50
102	1600				58
103	1780				70
104	1950				83
105	2100				100
106	2250				118
107	2390				140
108	2520				165
109	2640				195
110	2750				230

A. At what level of labor (control variable) is profit (net benefit) maximized?

Your answer:

                                                           

B. What is the relation between marginal revenue and marginal cost at this level of the control variable?                       

Your answer:

C. Graph Profit, Marginal Revenue, and Marginal Cost in a single line graph. Note that marginal revenue equals marginal cost where profit is maximized.

Answer 1

It shall be noted that Total Cost C(Q2) = Total Cost (Q1) + MC(Q2)

Marginal Revenue (Marginal Benefit) MB(Q2) = (Total Revenue(Q2) - Total Revenue(Q1))/(Q2-Q1)

Profit = Total Revenue - Total Cost

Thus, the complete table is:

Labor (control variable)	Total Revenue (Total Benefit) B(Q)	Total Cost C(Q)	Profit (Total Benefit)	Marginal Revenue (Marginal Benefit)MB(Q)	Marginal Cost MC(Q)
100	1210	900	310
101	1410	950	460	200	50
102	1600	1008	592	190	58
103	1780	1078	702	180	70
104	1950	1161	789	170	83
105	2100	1261	839	150	100
106	2250	1379	871	150	118
107	2390	1519	871	140	140
108	2520	1684	836	130	165
109	2640	1879	761	120	195
110	2750	2109	641	110	230

A.

The profit is maximized, when MR = MC

MR = MC=140 occurs at 107 units of labor.

Thus, at 107 units of labor, the profit (net benefit) maximized

B.

The marginal revenue and marginal cost at this level of the control variable are equal to 140

C.

The graph is: