Answer to Question #223182 in Microeconomics for fanscil

Question

The total cost and total income of Product Z are shown in the table below:

Quantity:

1. 0 product Z
2. 1 product Z
3. 2 product Z
4. 3 product Z
5. 4 product Z
6. 5 product Z
7. 6 product Z
8. 7 product Z

Total cost （￥）:

1. ￥7
2. ￥11
3. ￥16
4. ￥22
5. ￥29
6. ￥37
7. ￥46
8. ￥56

Total Revenue (￥)：

1. ￥0
2. ￥10
3. ￥20
4. ￥30
5. ￥40
6. ￥50
7. ￥60
8. ￥70

a.) Calculate average total revenue, marginal cost, marginal revenue, and total profit using the information above. Identify the level of production/output the company should produce in order to maximize profits.

b.) illustrate (draw) a graph showing average total revenue, marginal cost, and marginal revenue using the solution in (a) (put the points between whole numbers). Using the graph, calculate the price of product Z and explain your solution.

Answer 1

Marginal cost is given by change in total cost divided by change in quantity

Marginal cost （￥）:

1. ￥0
2. ￥4
3. ￥5
4. ￥6
5. ￥7
6. ￥8
7. ￥9
8. ￥10

Marginal revenue is given by change in total revenue fivided by change in quantity

Marginal Revenue (￥)：

1. ￥0
2. ￥10
3. ￥10
4. ￥10
5. ￥10
6. ￥10
7. ￥10
8. ￥10

ATR is given by total revenue divided the quantity of product Z

Average Total Revenue (￥)：

1. ￥0
2. ￥10
3. ￥10
4. ￥10
5. ￥10
6. ￥10
7. ￥10
8. ￥10

Profit is given by TR - TC

1. ￥-7
2. ￥-1
3. ￥4
4. ￥8
5. ￥11
6. ￥13
7. ￥14
8. ￥14

The company maximizes profit when it produces and sells 7 units of product Z. This is the point when marginal cost equals marginal revenue

B.

the firm will produce up to the quantity where MR = MC.

MR and MC intersect at a quantity of  7

Total revenue divided by each respective quantity gives 10 in each category the firm will charge a price of 10 for its products