3. The following schedule shows demand and total cost for a firm with market pow

Question

3. The following schedule shows demand and total cost for a firm with market power: Price $30 29 28 27 26 25 24 Quantit Total Cost 10 $200 208 12 13 227 15 16 250 263 a. To maximize profit firm should produce units of output and charge a price of b. At this level of output the firm earns a profit of S. c. The last unit of output produced and sold adds $ to revenue and S to cost. d. One more unit of output beyond the profit-maximizing level of output would add to revenue and $ to cost, thereby profit by $

Explanation / Answer

Answer

Answer
TR=P*Q
MC of n th the unit=TC of n units - TC of n-1 units
MR of n the unit =TR of n units- TR of n-1 units
Profit=TR-TC
a)
the firm maximizes profit at MR=MC
where
Q=14
P=$26
b)
Profit=126
c)
the last unit adds
to revenue=13
to cost=11
d)
one more unit will
unit adds
to revenue=11
to cost=12
thereby
decrease
profit of $1

P Q TC TR MC MR Profit 30 10 200 300 100 29 11 208 319 8 19 111 28 12 217 336 9 17 119 27 13 227 351 10 15 124 26 14 238 364 11 13 126 25 15 250 375 12 11 125 24 16 263 384 13 9 121

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