Answer to Question #170928 in Economics for Gabrielle

Question

Suppose Dell is currently selling 250,000 Inspiron laptops per month. A manager at Dell argues: ‘The last 10,000 laptops we produced increased our revenue by $8.5 million and our costs by $8.9 million. However, because we are making a substantial total profit of $25 million from producing 250,000 laptops, I think we are producing the optimal number of laptops.’

Briefly explain whether you agree with the manager’s reasoning.

Answer 1

If the last 10,000 laptops produced increased revenue by $8.5 million and costs by $8.9 million, then MR = $8.5 million and MC = $8.9 million. Profits are maximized when MR = MC. As MC > MR, then Dell should decrease production to maximize profits.