1. Which of the following statements is true? Price (S) 20 18 14 MC 12 10 8 10 Q

Question

1. Which of the following statements is true? Price (S) 20 18 14 MC 12 10 8 10 Quantity (100s) 3.54 I. If the firm is producing 5 units of output, it should expand output to increase profits because P> MC. II. At a price of $16, the firm's profits would rise if it lowered its price. III. The profit-maximizing quantity is 600 units IV. The profit-maximizing price is $13. a. I and III b. IV c. II and IV d. III and IV 2. Bubba Golf, a manufacturer of golf clubs, can sell 3 drivers at $600 each. To sell 4 drivers, Bubba Golf must lower the price to $580 each. The marginal revenue of the 4th club is: a. $20 b. $60 C. $580 d. $520

Explanation / Answer

Q1
Answer
Option b
IV
The firm maximizes profit at MR=MC
where
P=$13 and Q=275 units

Q2
Answer
Option d
TR=P*Q

MR of n th unit=(TR of n units -TR of p units)/(n-p)...................n>p

TR(3)=600*3=1800

TR(4)=580*4=2320

MR(4)=2320-1800=520

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