Question

Based on marginal analysis, what is the approximate profit-maximizing level of output for this business?

The table below depicts the prices and total costs a local used-book store faces. The bookstore competes with a number of similar stores, but it capitalizes on its location and the word-of-mouth reputation of the coffee it serves to its customers. Calculate the store's total revenue, total profit, marginal revenue, and marginal cost at each level of output, beginning with the first unit (Enter all values rounded to the nearest penny.) Price per Total Total Marginal Profit ($) Reveue () Cost (s) Total Marginal Output Book () Costs ($) Revenue ($) 5.75 5.50 5.25 5.00 4.75 4.50 4.25 4.00 4.00 7.25 9.50 11.60 14.10 17.60 21.75 26.50

Answer 1

In the given table,

Total revenue = price * quantity of book.

Total profit = Total revenue - total cost

Marginal revenue = change in the total revenue ÷ the change in the quantity.

Marginal cost = change in the Total cost ÷ change in the quanitity.

Marginal cost is the extra cost incurred by a firm when its production raises by one unit. The firm should continue to produce extra units until the marginal revenue is more than or equal to marginal cost.

Profit maximising level of output is the level where Marginal revenue is equal to marginal cost ( MR = MC, 3.5) , i.e 5 units.

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