Microeconomics
Microeconomics
2nd Edition
ISBN: 9781464187025
Author: Austan Goolsbee, Steven Levitt, Chad Syverson
Publisher: Worth Publishers
Question
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Chapter 8, Problem 3P

(a)

To determine

Complete the table.

(a)

Expert Solution
Check Mark

Explanation of Solution

The variable cost is calculated as the sum of marginal cost up to a particular level of output using Equation (1) is as follows:

Total variable costn=Marginal cost1+Marginal cost2+...+Marginal costn (1)

Substitute the respective values in Equation (1) to calculate the variable cost of one unit of output.

Total variable cost1=Marginal cost1=30

The variable cost of one unit of output is 30.

The total cost  calculated using Equation (2) is as follows:

Total cost=Total fixed cost+Total variable cost (2)

Substituting the respective values in Equation (2), the total cost of producing one unit of output can be calculated as follows:

Total cost=15+30=45

The total cost of producing one unit is $45.

The total revenue calculated using Equation (3) is as follows:

Total revenue=Price×Quantity (3)

Substituting the respective values in Equation (3), the total revenue can be calculated as follows:

Total revenue=50×1=50

The total revenue of producing one unit of output is $50.

The profit is calculated as the difference between the total revenue and the total cost using Equation (4) is as follows:

Profit=Total revenueTotal cost (4)

Substituting the respective values in Equation (4), the profit can be calculated as follows:

Profit=5030=20

The profit of producing the first unit of output is 20.

The marginal revenue of producing one unit of output calculated using Equation (5) is as follows:

Marginal revenue=Total revenuePresentTotal revenuePrevious (5)

Substituting the respective values in Equation (5) the marginal revenue at the output level 1 unit is calculated as follows:

Marginal revenue=500=50

Marginal revenue at the output level 1 unit is $50.

Table 1 given below shows the value of total cost, average variable cost, average total cost and marginal cost calculated using Equation (1), (2), (3), (4) and (5).

Table 1

Level of outputTotal RevenueTotal Fixed CostTotal Variable CostTotal CostProfit

 Marginal Revenue

Marginal Cost
0015--15-
15015304555030
2100156580205035
315015107122285042
420015157172285050
525015217222285060
630015289304-1045072
Economics Concept Introduction

Fixed cost: Fixed cost is defined as the cost that is independent of the level of output or production of a firm.

Variable cost: Variable cost is defined as the cost that depends on the level of production or output of a firm.

Marginal cost: Marginal cost is defined as the additional cost that is incurred due to the production of an extra unit of output.

Total cost: Total cost is defined as the sum of variable cost and fixed cost.

Total revenue: Total revenue is defined as the total income earned from the sale of output produced.

Profit: Profit is defined as the excess revenue earned over the total cost of production.

(b)

To determine

The quantity of output that maximizes revenue.

(b)

Expert Solution
Check Mark

Explanation of Solution

The maximum revenue is obtained when the N produces 6 pounds of beeswax by earning $300.

Economics Concept Introduction

Total revenue: Total revenue is defined as the total income earned from the sale of output produced.

(c)

To determine

The quantity of output that maximizes profit.

(c)

Expert Solution
Check Mark

Explanation of Solution

The maximum profit that can be produced is $28 and this profit is obtained when Nancy produces 4 pounds of beeswax.

Economics Concept Introduction

Profit: Profit is defined as the excess revenue earned over the total cost of production.

(d)

To determine

The profit maximization.

(d)

Expert Solution
Check Mark

Explanation of Solution

When the profit is maximized, the marginal revenue of the firm is equal to the marginal cost of the product. The profit maximization occurs at the point when the additional revenue obtained from the selling of the last unit of output is equal to cover the additional cost of the last unit of product.

Economics Concept Introduction

Marginal cost: Marginal cost is defined as the additional cost that is incurred due to the production of an extra unit of output.

Marginal revenue: Marginal revenue is defined as the additional revenue earned by a firm due to the production of an extra unit of output.

(e)

To determine

Change in production and change in fixed cost.

(e)

Expert Solution
Check Mark

Explanation of Solution

A change in the fixed cost changes the total cost and the variable cost remains unchanged. Since there is no change in the variable cost, the marginal cost also does not change. This implies that the profit maximizing quantity remains unchanged.

Economics Concept Introduction

Marginal cost: Marginal cost is defined as the additional cost that is incurred due to the production of an extra unit of output.

Marginal revenue: Marginal revenue is defined as the additional revenue earned by a firm due to the production of an extra unit of output.

(f)

To determine

Change in profit maximizing output.

(f)

Expert Solution
Check Mark

Explanation of Solution

When the marginal cost at each unit increases by $8, the value of total revenue, fixed cost, variable cost, total cost, profit and marginal revenue can be calculated using Equation (1), (2), (3), (4) and (5) that shows in Table 2.

Table 2

Level of outputTotal RevenueTotal Fixed CostTotal Variable CostTotal CostProfit

 Marginal Revenue

Marginal Cost
0015015-15-
150153853-35038
210015819645043
31501513114645050
420015189204-45050
525015257272-225068
630015337352-525080

When the marginal cost increases by $8, the production decreases and the profit is maximized at $4 when the output produced is 3 pounds of beeswax.

Economics Concept Introduction

Fixed cost: Fixed cost is defined as the cost that is independent of the level of output or production of a firm.

Variable cost: Variable cost is defined as the cost that depends on the level of production or output of a firm.

Marginal cost: Marginal cost is defined as the additional cost that is incurred due to the production of an extra unit of output.

Total cost: Total cost is defined as the sum of variable cost and fixed cost.

Total revenue: Total revenue is defined as the total income earned from the sale of output produced.

Profit: Profit is defined as the excess revenue earned over the total cost of production.

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