A price-taking firm makes air conditioners. The market price of one of their new

Question

A price-taking firm makes air conditioners. The market price of one of their new air conditioners is $120. Its total cost information is given in the following table. LO1, LO3, LO4 Air conditioners/day Total cost ($/day) Marginal cost ($) 1 100 2 150 2 220 4 310 5 405 6 510 7 650 8 800 Complete the column labeled "Marginal cost." How many air conditioners will the firm produce per day if its goal is to maximize its profit? Does your answer to (b) imply that the firm is setting marginal revenue equal to marginal cost? Why or why not? The Paducah Slugger Company makes baseball bats

Explanation / Answer

a. Marginal Cost:

b. Maximum profit is when MR = MC

MR = $120 the closest MC to this is when MC = $105 and # of airconditioners = 6/day. Can also be seen by calculating profit = Total Revenue - Total Cost as shown in the table below:

c. Yes. Maximum profit occurs when MR = MC.

This is because Total Profit = Total Revenue - Total Costs. The maxima occurs at the point where first derivative of profit equals 0. ie d(Total Revenue - Total Costs)/dq = 0

ie Marginal Revenue - Marginal Costs = 0 i.e Marginal Revenue = Marginal Costs

Air Conditioners /day Total Cost ($/day) Marginal Cost 1 100 100 2 150 50 3 220 70 4 310 90 5 405 95 6 510 105 7 650 140 8 800 150

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