Question

Price	Quantity	Total Cost
$10	1	3
9	2	5
8	3	8
7	4	12
6	5	17
5	6	23
4	7	30
3	8	38

1. How much output should the firm produce?
2. What price should the firm charge?
3. What is the maximum amount of profit that this firm can earn?

Answer 1

Price	Quantity	Total Cost	Total Revenue	Marginal Revenue	Marginal Cost
10	1	3	10	-	-
9	2	5	18	8	2
8	3	8	24	6	3
7	4	12	28	4	4
6	5	17	30	2	5
5	6	23	30	0	6
4	7	30	28	-2	7
3	8	38	24	-4	8

Total Revenue = Price x Quantity

Marginal Revenue = Total Revenue at Qth unit - Total Revenue at (Q - 1)th Unit

Marginal Cost = Total Cost at Qth unit - Total Cost at (Q - 1)th Unit

a) Since profit maximization occur at a point where Marginal Revenue = Marginal Cost

here, above codition is satisfied at Quantity = 4.

So, Firm should produce Quantity = 4.

b) Since at profit maximizing Quantity = 4, price = 7. So firm should charge price = 7

c) Profit = Total Revenue - Total Cost

= 28 - 12

Profit = 16   ,<= maximum amount of profit that this firm can earn