Question

Using the following table what quantity of output should be the firm produce? explain your answer

Q. TR. TC

1. $100. $50

2. 200. 110

3. 300. 180.

4. 400. 260

5. 500. 360

6. 600. 480

Answer 1

The marginal revenue (MR) and marginal cost (MC) of each unit of product has been calculated as follows:

Quantity	TR	MR	TC	MC
1	100	-	50	-
2	200	200 – 100 = 100	110	110 – 50 = 60
3	300	300 – 200 = 100	180	180 – 110 = 70
4	400	400 – 300 = 100	260	260 – 180 = 80
5	500	500 – 400 = 100	360	360 – 260 = 100
6	600	600 – 500 = 100	480	480 – 360 = 120

A firm maximizes profit when the marginal revenue equals the marginal cost. In this case, the marginal revenue and marginal cost are equal (both are 100) when 5 units are produced. So, the firm maximizes profit when 5 units are produced. So, it should produce 5 units.