Price or MR Quantity TR TC Profit or Loss TVC ATC AVC MC 4 100 400 350 +50 300 3
ID: 1224910 • Letter: P
Question
Price or MR
Quantity
TR
TC
Profit or
Loss
TVC
ATC
AVC
MC
4
100
400
350
+50
300
3.5
3
5
10
20
200
500
-300
300
25
15
10
50
100
5000
5100
-100
3000
51
30
90
25
100
2500
2500
0
2000
25
20
25
You have been hired by the following 4 firms to help them analyze their positions. Should they continue production as stated, increase or decrease their output, or stop producing? Use the rules regarding profit max. to make your decisions. State why you think the actions you state are the correct actions for that set of circumstances
Price or MR
Quantity
TR
TC
Profit or
Loss
TVC
ATC
AVC
MC
4
100
400
350
+50
300
3.5
3
5
10
20
200
500
-300
300
25
15
10
50
100
5000
5100
-100
3000
51
30
90
25
100
2500
2500
0
2000
25
20
25
Explanation / Answer
Firm 1:
Firm 1 has a MR=$4 and MC=$5, which means at the given output level, its MC exceeds MR, thereby leading to losses. In order to maximize profits, the firm should operate till the point MR=MC. Since here the MC exceeds MR, the firm should decrease production.
Firm 2:
Firm 2 has a MR=$10 and MC=$10, which means at the given output level, its MC equals MR, thereby leading profit maximization. Thus, the firm should stop production at this point, as further production might lead to increase in MC over MR.
Firm 3:
Firm 3 has a MR=$50 and MC=$90, which means at the given output level, its MC exceeds MR, thereby leading to losses. In order to maximize profits, the firm should operate till the point MR=MC. Since here the MC exceeds MR, the firm should decrease production.
Firm 4:
Firm 4 has a MR=$25 and MC=$25, which means at the given output level, its MC equals MR, thereby leading profit maximization. Thus, the firm should stop production at this point, as further production might lead to increase in MC over MR.
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