Next let\'s practice finding profit maximization points for several different pr

Question

Next let's practice finding profit maximization points for several different prices In all cases, I ask you to do it twice - once by the 'aggregate' approach (by calculating profit and choosing the largest number) and then by the 'marginal' (MR vs MC) approach The algorithms for using each of the two approaches are on slides 205 and 215 in the notes The templates are provided below The solved problem 11-3 on pp.375-6 in the chapter will also be helpful In , the price of each unit of output is $1.80. Fill out the two tables below and state the answers. Go back to the graph and use the information from the tables on this page to outline the "box" corresponding to Frances' profit, the way it is explained and done on pp.375-377 in the text

Explanation / Answer

Table 1 - 'Aggregate approach'

TR

(TR = P * Q)

Profit

(Profit = TR - TC)

According to aggregate approach, the firm should produce that number of units at whic difference between total revenue and total cost is at its maximum or in other words, total profit is at its highest or maximum.

As table 1 shows that differnce between TR and TC is highest or total profit is maximum when 6 units are produced.

So,

The optimal number of units to produce = 6 units

Maximum profit = $4

Table 2 - 'Marginal approach'

MC

(MC = TCn - TCn-1)

MR

(MR = TRn - TRn-1)

Produce

If MR MC - Y

If MR < MC - N

As table 2 shows that last unit worth producing is 6th unit.

Therefore, Frances should produce 6 units.

Q TC

TR

(TR = P * Q)

Profit

(Profit = TR - TC)

0 1 0 -1 1 2.50 1.80 -0.7 2 3.50 3.60 0.1 3 4.20 5.40 1.2 4 4.50 7.20 2.7 5 5.20 9.00 3.8 6 6.80 10.80 4 7 8.70 12.60 3.9 8 10.70 14.40 3.7 9 13.00 16.20 3.2

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.