Question

Paulina sells beef in a competitive market where the price is $7 per pound. Her total revenue and total costs are given in the table below. Quantity of beef (lbs.) Total revenue ($) Total cost ($) Profit ($) Marginal revenue ($) Marginal cost (5) Marginal profit ($) 1 14 21 28 12 18 25 T Instructions: Round your answers to the nearest dollar and include a negative sign if appropriate. a. Fill out the table. b. At what quantity does marginal revenue equal marginal cost? pounds c. What is the profit-maximizing (or loss-minimizing) quantity? pounds

Answer 1

Answer

a)

Profit(Q)=TR-TC

Profit(0)=0-7=-7 and so on

MR=$7=price --------------- marginal revenue is the same at all the level as the firm is in perfect competition and it is equal to price.

MC(n)=TC(n)-TC(n-1)
MC(n)=marginal cost of n th unit
TC(n)=Total cost of n units of output
MC(1)=9-7=0 and so on

Marginal profit =MR-MC

MP(1)=7-2=5 and so on

Q	TR	TC	Profit	MR	MC	MP
0	0	7	-7
1	7	9	-2	7	2	5
2	14	12	2	7	3	4
3	21	18	3	7	6	1
4	28	25	3	7	7	0

b)

MR=MC when marginal profit is equal to zero

where

Q=5 units

c)

the profit is maximum at

Q=5 units