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Questions on Average Cost and Revenue

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Question 1. A) The average cost and revenue are simply the mean of the cost and revenue per unit of output, at a given output level. The marginal cost and revenue are the cost and revenue from each additional unit of output, at the given level of output.
The average cost, marginal cost, average revenue and marginal revenue for this product is as follows:
Question 1
Output
Total Costs
AC
MC
Total Revenue
AR
MR
0
1
0
1
13
13
12
27
27
27
2
24
12
11
53
26.5
26
3
33
11
9
78
26
25
4
40
10
7
102
25.5
24
5
50
10
10
125
25
23
6
66
11
16
147
24.5
22
7
84
12
18
168
24
21
8
104
13
20
188
23.5
20
9
126
14
22
207
23
19
10
150
15
24
225
22.5
18
b) The following graph illustrates average cost, marginal cost, average revenue and marginal revenue. The point of profit maximization under any industry structure is the point where marginal revenue equals marginal cost (CliffNotes, 2012). In this example, that is where output is 8 units, and both MC and MR = $20.
At this combination of price and output, the output is 8. The total revenue is $188 and the total costs are $104, so the profit at this point is $84.
d. While MC=MR is the point of profit maximization for all industries, this industry appears to be in a state of monopoly. The marginal cost declines during the early stages of output increase, then begins to increase. It is during these early stages of output increase, where marginal revenue remains

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