a)
Marginal revenue of the fourth unit
a)
Explanation of Solution
Quantity | Total revenue | Total cost | Profit (TR-TC) | Marginal revenue |
0 | $0 | $7 | (0-7) = -7 | |
1 | 18 | 23 | (18-23) = -5 | 18 |
2 | 36 | 29 | 7 | 18 |
3 | 54 | 37 | 17 | 18 |
4 | 72 | 49 | 23 | 18 |
5 | 90 | 65 | 25 | 18 |
6 | 108 | 87 | 21 | 18 |
7 | 126 | 112 | 14 | 18 |
The marginal revenue of the fourth unit is 18.
Introduction: Marginal revenue is the benefit or revenue that is occurred by using an addition unit of the good which is calculated by subtracting the old total revenue from the new total revenue.
b)
Profit at a quantity of two
b)
Explanation of Solution
Quantity | Total revenue | Total cost | Profit (TR-TC) |
0 | $0 | $7 | (0-7) = -7 |
1 | 18 | 23 | (18-23) = -5 |
2 | 36 | 29 | 7 (36-29) |
3 | 54 | 37 | 17 |
4 | 72 | 49 | 23 |
5 | 90 | 65 | 25 |
6 | 108 | 87 | 21 |
7 | 126 | 112 | 14 |
Profit at quantity of two is 7.
Introduction: Profit is the difference between the total revenue and total cost.
c)
Profit maximizing level of output
c)
Explanation of Solution
Quantity | Total revenue | Total cost | Profit (TR-TC) | Marginal revenue | Marginal cost |
0 | $0 | $7 | (0-7) = -7 | ||
1 | 18 | 23 | (18-23) = -5 | 18 | 16 |
2 | 36 | 29 | 7 | 18 | 6 |
3 | 54 | 37 | 17 | 18 | 8 |
4 | 72 | 49 | 23 | 18 | 12 |
5 | 90 | 65 | 25 | 18 | 16 |
6 | 108 | 87 | 21 | 18 | 22 |
7 | 126 | 112 | 14 | 18 | 25 |
The profit maximizing level of output is 5.
To determine the profit-maximizing level of output, the optimal output rule is used by stating MR = MC but in this case, MR is not equal to MC and then the firm needs to produce the highest level of quantity when MR exceeds MC.
At the level of highest profit, MC is $16, MR is $18 and quantity is 5 but in the 6th unit of output MR ($18) is lower than MC ($22) which shows the additional unit adds more cost to achieve the highest level of quantity than the total revenue.
Introduction: Profit is the difference between the total revenue and total cost.
Chapter 53 Solutions
Krugman's Economics For The Ap® Course
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education