6. (1.1 pt) Consider the total cost and total revenue given in the following tab

Question

6. (1.1 pt) Consider the total cost and total revenue given in the following table:

Output

Total Costs

Marginal   Costs

Total Revenue

Marginal Revenue

0

    $8

    $0

1

$9

    $8

2

   $10

   $16

3

$11

   $24

4

$13

   $32

5

$19

   $40

6

$27

   $48

7

$37

   $56

Calculate the marginal costs and marginal revenue.

How much should the firm produce to maximize profits? Explain.

What is the price of the product? Explain.

Output

Total Costs

Marginal   Costs

Total Revenue

Marginal Revenue

0

    $8

    $0

1

$9

    $8

2

   $10

   $16

3

$11

   $24

4

$13

   $32

5

$19

   $40

6

$27

   $48

7

$37

   $56

Explanation / Answer

(1)

Marginal cost (MC) = Change in Total cost (TC) / Change in output (Q)

Marginal revenue (MR) = Change in Total revenue (TR) / Change in output (Q)

Therefore:

(2) Firm will maximize profit by equating MR with MC. When MR = MC = $8,

Quantity = 6 units

(3) Price = TR / Q = $8 / 1 = $16 / 2 = $24 / 3 =........= $56 / 7 = $8

Q TC ($) MC ($) TR ($) MR ($) 0 8 0 1 9 1 8 8 2 10 1 16 8 3 11 1 24 8 4 13 2 32 8 5 19 6 40 8 6 27 8 48 8 7 37 10 56 8

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