a.
To evaluate the marginal revenue and Average revenue functions from the table given in the question.
a.
Explanation of Solution
Average revenue is the revenue which is obtained by dividing total revenue by quantity.
Marginal revenue is the additional revenue which is obtained by selling an extra unit of the product.
Formula to find the Marginal revenue (MR) and Average revenue (AR)
Output | Total Revenue (TR) | Marginal Revenue | Average Revenue |
0 | 0 | - | - |
1 | 34 |
|
|
2 | 66 |
|
|
3 | 96 | 30 | 32 |
4 | 124 | 28 | 31 |
5 | 150 | 26 | 30 |
6 | 174 | 24 | 29 |
7 | 196 | 22 | 28 |
8 | 216 | 20 | 27 |
9 | 234 | 18 | 26 |
10 | 250 | 16 | 25 |
11 | 264 | 14 | 24 |
12 | 276 | 12 | 23 |
13 | 286 | 10 | 22 |
14 | 294 | 8 | 21 |
15 | 300 | 6 | 20 |
16 | 304 | 4 | 19 |
17 | 306 | 2 | 18 |
18 | 306 | 0 | 17 |
19 | 304 | -2 | 16 |
20 | 300 | -4 | 15 |
Introduction: Average revenue is revenue produced per unit of product sold. It plays a part in deciding the income for a company. The average revenue is less than the average (total) expense per unit income. An organization typically aims to generate the amount of production that maximizes income.
b.
To evaluate the marginal cost and Average cost functions from the table given in the question.
b.
Explanation of Solution
Formula to find the MC and AC are:
Output | Total Cost (TC) | Marginal Cost | Average Revenue |
0 | 20 | - | - |
1 | 26 |
|
|
2 | 34 |
|
|
3 | 44 | 10 | 14.7 |
4 | 56 | 12 | 14.0 |
5 | 70 | 14 | 14.0 |
6 | 86 | 16 | 14.3 |
7 | 104 | 18 | 14.9 |
8 | 124 | 20 | 15.5 |
9 | 146 | 22 | 16.2 |
10 | 170 | 24 | 17.0 |
11 | 196 | 26 | 17.8 |
12 | 224 | 28 | 18.7 |
13 | 254 | 30 | 19.5 |
14 | 286 | 32 | 20.4 |
15 | 320 | 34 | 21.3 |
16 | 356 | 36 | 22.3 |
17 | 394 | 38 | 23.2 |
18 | 434 | 40 | 24.1 |
19 | 476 | 42 | 25.1 |
20 | 520 | 44 | 26.0 |
Introduction: The average cost method assigns a cost to inventory items based on the overall cost of the produced or manufactured goods over a period divided by the total number of products purchased or made. Often known as weighted-average method, is the average cost method.
c.
To evaluate the point where MR = MC and the output level in the graph that maximizes profits.
c.
Explanation of Solution
In economics, profit maximization is the short-term or long-term mechanism by which a firm can decide the levels of price, input, and production that lead to the highest benefit.
The graph is shown below:
Marginal revenue equals to Marginal cost when Output (Q) = 8, where MC = MR =20
Introduction: Marginal revenue is the rise in revenue arising from the selling of one extra output unit. Although marginal revenue may remain constant for a certain level of production, the law of diminishing returns follows and inevitably slows down as the level of production increases.
d.
To evaluate the point where MR = MC and the output level in the graph that maximizes profits.s
d.
Explanation of Solution
The average cost method assigns a cost to inventory items based on the overall cost of the produced or manufactured goods over a period divided by the total number of products purchased or made. Often known as weighted-average method, is the average cost method.
In economics, profit maximization is the short-term or long-term mechanism by which a firm can decide the levels of price, input, and production that lead to the highest benefit.
Referring from the tables in part (a) and part (b) and the solution at Q = 8, the table is given below:
Output | Marginal Cost | Marginal Revenue |
8 | 20 | 20 |
Introduction: Marginal revenue is the rise in revenue arising from the selling of one extra output unit. Although marginal revenue may remain constant for a certain level of production, the law of diminishing returns follows and inevitably slows down as the level of production increases. Perfectly competitive firms continue to generate production until marginal revenue is equal to marginal costs.
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Chapter B Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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- Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning