Question
Asked Jan 27, 2020
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Suppose a firm has the following cost:

Output (units): 10 11 12 13 14 15 16 17 18 19

Total cost:        $50 $52 $56 $62 $70 $80 $92 $106 $122 $140

a. If the prevailing market price is $14 per unit, how much should the firm produce?

b. How much profit will it earn at the output rate?

c. If it increases output by 2 units, will it make more profit or less?

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Expert Answer

Step 1

a.

The total cost of the firm is given and the marginal cost can be calculated by subtracting the TC2 from TC1 and so on. The Total revenue can be calculated by multiplying the output unit with the prevailing market price of $14. The profit can be calculated by subtracting the total cost from the total revenue of the firm. Thus, the total cost, revenue and profit can be calculated and tabulated as follows:

Economics homework question answer, step 1, image 1
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Step 2

The firm has the profit maximizing point where the marginal cost is equal to the marginal revenue and price. In this case, the price is given to be $14 which is also the marginal revenue of the firm. The marginal revenue equals the marginal cost at the output level of 17 units. So, the firm should produce 17 units of output.

Step 3

b.

The profit maximizing level of output of the firm is calculated to be 17 units. The total cost of the firm at the profit ma...

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