Accounting Assignment

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1.a) Firms maximize profits where MR=MC. In this case, the chart is as follows: Total Fixed Variable Total Average Marginal Quantity Cost Cost Cost Cost Cost Price Profit MR 0 40 0 40 x x 72 1 40 55 95 95 55 72 -23 -23 2 40 75 115 57.5 20 72 29 52 3 40 90 130 43.33 15 72 86 57 4 40 110 150 37.5 20 72 138 52 5 40 135 175 35 25 72 185 47 6 40 170 210 35 35 72 222 37 7 40 220 260 37.14 50 72 244 22 8 40 290 330 41.25 70 72 246 2 The firm will therefore produce 6 units. At this level, the marginal cost is $35 and the marginal revenue is $37. If any more units are produced, the marginal cost of those units will be higher than the marginal revenue. The profit at this level is $222. b) If the price is $52, the table looks as follows: Total Fixed Variable Total Average Marginal Quantity Cost Cost Cost Cost Cost Price Profit MR 0 40 0 40 x x 52 1 40 55 95 95 55 52 -43 -43 2 40 75 115 57.5 20 52 -11 32 3 40 90 130 43.33 15 52 26 37 4 40 110 150 37.5 20 52 58 32 5 40 135 175 35 25 52 85 27 6 40 170 210 35 35 52 102 17 7 40 220 260 37.14 50 52 104 2 8 40 290 330 41.25 70 52 86 -18 The firm in this situation will produce 5 units, because at this level the marginal revenue is 27 and the marginal cost is 25. If any more units are produced, the marginal revenue will be lower than the marginal cost. The profit at this level of production is $85. Total Fixed Variable Total Average Marginal Quantity Cost Cost Cost Cost Cost Price Profit MR 0 40 0 40 x x 28 1 40 55 95 95 55
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