Labor Total Product (TP) Fixed Cost (TFC) Variable Cost (TVC) Price
0 0 $10000 $ 0 $7.00
1 6000 $10000 $ 60,000 $7.00
2 22000 $10000 $110,000 $7.00
3 45000 $10000 $135,000 $7.00
4 60000 $10000 $240,000 $7.00
5 65000 $10000 $455,000 $7.00
Solve for marginal revenue (MR) in each row, except for where labor = 0.
What is the profit maximizing total product, or quantity, for this firm?
Marginal revenue is the revenue we get by employing 1 extra labor
To calculate this, we first calculate the revenue for all labors and then subtracting it from revenue generated by employing one less labor
Labor | Total product | Fixed cost | TVC | Price | TC | Revenue | MR |
0 | 0 | 10000 | 0 | 7 | 10000 | 0 | |
1 | 6000 | 10000 | 60000 | 7 | 70000 | 42000 | 42000 |
2 | 22000 | 10000 | 110000 | 7 | 120000 | 154000 | 112000 |
3 | 45000 | 10000 | 135000 | 7 | 145000 | 315000 | 161000 |
4 | 60000 | 10000 | 240000 | 7 | 250000 | 420000 | 105000 |
5 | 65000 | 10000 | 455000 | 7 | 465000 | 455000 | 35000 |
b) Profits are maximized when Marginal revenue = Marginal Cost
Marginal cost is the cost of employing one extra labor.
To calculate this, we first calculate the Total cost for all labors and then subtracting it from Cost incurred by employing one less labor.
Labor | Total product | Fixed cost | TVC | Price | TC | Revenue | MR | MC |
0 | 0 | 10000 | 0 | 7 | 10000 | 0 | ||
1 | 6000 | 10000 | 60000 | 7 | 70000 | 42000 | 42000 | 60000 |
2 | 22000 | 10000 | 110000 | 7 | 120000 | 154000 | 112000 | 50000 |
3 | 45000 | 10000 | 135000 | 7 | 145000 | 315000 | 161000 | 25000 |
4 | 60000 | 10000 | 240000 | 7 | 250000 | 420000 | 105000 | 105000 |
5 | 65000 | 10000 | 455000 | 7 | 465000 | 455000 | 35000 | 215000 |
At 4 labors when we produce 60,000 products, out profits are higest.
Labor Total Product (TP) Fixed Cost (TFC) Variable Cost (TVC) Price 0 ...
Labor (TP) (TFC) (TVC) Price TC TR MR MC 0 0 $10000 0 $7.00 10,000 0 ---- ----- 1 6000 $10000 $60,000 $7.00 70,000 42,000 42,000 60,000 2 22000 $10000 $110,000 $7.00 120,000 154,000 112,000 50,000 3 45000 $10000 $135,000 $7.00 145,000 315,000 161000 25,000 4 60000 $10000 $240,000 $7.00 250,000 420,000 105000 105,000 5 65000 $10000 $455,000 $7.00 465,000 455,000 35000 215,000 Solve for average...
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