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5. Interpreting MR and MC

A car wash that provides car washes has determined that it faces the daily revenue and cost data shown in the following table.

Complete the following table by determining the marginal revenue (MR) and marginal cost (MC) associated with changes in output from 0 to 15, 15 to 30, and 30 to 45 car washes per day, and enter your answers in the appropriate column.

Hint: Remember that marginal revenue (MR) is defined as the change in total revenue divided by the change in output.

Output	Total Revenue	Marginal Revenue	Total Cost	Marginal Cost
(Car washes per day)	(Dollars per day, $)	(Dollars per car wash, $)	(Dollars per day, $)	(Dollars per car wash, $)
0	0	?	75	?
		?		?
15	600		225
		?		?
30	1,050		525
		?		?
45	1,350		975

Suppose the car wash is currently doing 15 car washes per day. As an economist, what advice would you give Darnell, the owner of the car wash?

"You should perform more car washes per day, because the marginal revenue from performing an additional car wash is larger than the marginal cost."

"You should perform fewer car washes per day, because the marginal revenue from performing an additional car wash is smaller than the marginal cost."

"You should perform 45 car washes per day, because at that quantity, total revenue minus total cost is positive."

"You should perform the number of car washes that yields the highest total revenue."

Answer 1

Answer-Option A

"You should perform more car washes per day, because the marginal revenue from performing an additional car wash is larger than the marginal cost."

Explanation-

General rules for profit maximization-

1-If MR>MC then the firm should increase its output.

2-If MR<MC then the firm should decrese its output.

3-At profit maximisation level MR=MC.

Here at point of production MR?MC.However at output level of 15 MR>MC so the most sensible option would be to incease the output or the numbe of car washes.