Question

Given the following information, what is the best price? Please show your work. Q Price TC...

Given the following information, what is the best price? Please show your work.

Q Price TC MC
0 $10
$5
1 $15
$7
2 $13
$9
3 $11
$11
4 $9
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Homework Answers

Answer #1

The best price is $13

Total revenue for one unit sold is $15. Total revenue for two units sold is $26 (2 X 13). Total revenue for 3 units sold is $33. This implies that marginal revenue for the first unit is $15 and $11 for the second unit. For the third unit marginal revenue is $7. Marginal cost is however $9 for the second unit which means when the second unit is sold additional revenue is greater than additional cost. for the third unit additional revenue is less than additional cost which shows that economic profit should be maximum when two units are sold. The relevant price will be $13.

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