1. Which of the following statements is true? Price (S) 20 18 16 14 12 10 MC MR

Question

1. Which of the following statements is true? Price (S) 20 18 16 14 12 10 MC MR 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. b. c. I and III IV II and IV 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 2. a. $20 b. $60 c. $580 d. $520

Explanation / Answer

Q1
Answer
Option b
The firm maximizes profit by producing at MR=MC, where Q=354 and P=$13

Q2
option d
TR=P*Q
MR of n th unit=(TR of n units -TR of p units)/(n-p)...................n>p
MR(4)=TR(4)-TR(3)
=(580*4)-(600*3)
=$520

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