Question

You run a game day shuttle service for parking services for the local ball club. Your costs for different customer loads are 1: $30, 2: $32, 3: $35,4: $38, 5: $42, 6: $48, 7: $57, and 8: $68. What are your marginal costs for each customer loadlevel? If you are compensated $10 per ride,what customer load would you want? Please do not handwrite, and explain in great detail, so that I can understand. Thanks again. (OH BTW PLEASE MAKE SURE THIS IS NOT A REPEAT ANSWER FROM ONE OF THE OTHER ANSWERS ALREADY POSTED)

Answer 1

Customer Load, Q	Total Cost, TC	Marginal Cost, MC=Change in TC/Change in Q
1	30
2	32	2
3	35	3
4	38	3
5	42	4
6	48	6
7	57	9
8	68	11

In this case, price does not depend upon the customer load. So, its a case of perfect competition.

A perfectly competitive firm increases its output level as long as Price is higher than or equal to its Marginal Cost to maximize profit.

In this case, MC<Price ($10) at customer load of 7 and MC>Price ($10) at a customer load of 8.

So, customer load should be 7 units to maximize profit.