I need explanation , please The following table represents the MPG corporation\'
ID: 2440067 • Letter: I
Question
I need explanation, please
The following table represents the MPG corporation's costs of making quarts of gasoline additive. Note that MPG has total fixed costs of $7. Assume that the company can only produce whole numbers of output. Assume that MPG is a price-taking firm.
Quantity
Total Cost
Marginal Cost
0
7
---
1
16
9
2
24
8
3
31
7
4
39
8
5
49
10
6
61
12
7
75
14
If the selling price of the gasoline additive is $11 per quart, what level of output should MPG produce to maximize profits?
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The following table represents the MPG corporation's costs of making quarts of gasoline additive. Note that MPG has total fixed costs of $7. Assume that the company can only produce whole numbers of output. Assume that MPG is a price-taking firm.
Quantity
Total Cost
Marginal Cost
0
7
---
1
16
9
2
24
8
3
31
7
4
39
8
5
49
10
6
61
12
7
75
14
If, when the selling price of the gasoline additive is $11 per quarts (though this might not be a smart choice), what would be its level of profits?
Quantity
Total Cost
Marginal Cost
0
7
---
1
16
9
2
24
8
3
31
7
4
39
8
5
49
10
6
61
12
7
75
14
Explanation / Answer
Ans) the correct option is 5. Since MPG is a price taking firm so P = MC or P close to MC. P is close to MC at two output levels 5 and 6 but profit is maximum at output 5. When output = 6, profit = 11 *6 - 61 = 5 and when output = 5, profit = 11*5 - 49 = 6. and profit is maximised at an output level of 5.
Ans) the correct option is 5.
Profit = total revenue - total cost
= 11*6 - 61 = 5
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