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Question
To maximize its profit, the firm should produce:
To maximize its profit, the firm should produce:
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Solution
The correct option is D 7 units
The firm earns maximum profit at the level of production where MR=MC. At the level of production of 7 units, marginal revenue = marginal cost =52.
Production
(Q) Price per unit
(P) Total Cost
(TC)
Marginal cost
(MC) Total revenue
(TR) 0 130 45
- 0 1 124 88
43 124 2 118 125
37 236 3 112 159
34 336 4 106 193
34 424 5 100 230
37 500 6 94 273
43 564 7 88 325
52 616 8 82 389
64 656 9 76 465
76 684
Formulas:
TR =P×Q
MC =TCn−TCn−1
MR =TRn−TRn−1
The firm earns maximum profit at the level of production where MR=MC. At the level of production of 7 units, marginal revenue = marginal cost =52.
| Production (Q) | Price per unit (P) | Total Cost (TC) | Marginal cost (MC) | Total revenue (TR) | ||
| 0 | 130 | 45 | - | 0 | ||
| 1 | 124 | 88 | 43 | 124 | ||
| 2 | 118 | 125 | 37 | 236 | ||
| 3 | 112 | 159 | 34 | 336 | ||
| 4 | 106 | 193 | 34 | 424 | ||
| 5 | 100 | 230 | 37 | 500 | ||
| 6 | 94 | 273 | 43 | 564 | ||
| 7 | 88 | 325 | 52 | 616 | ||
| 8 | 82 | 389 | 64 | 656 | ||
| 9 | 76 | 465 | 76 | 684 |
Formulas:
TR =P×Q
MC =TCn−TCn−1
MR =TRn−TRn−1
TR =P×Q
MC =TCn−TCn−1
MR =TRn−TRn−1
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