Question

Consider the market of Game of Crowns episodes. If the marginal cost of this product is MC=10+10q and the market price is $5. What is the profit- maximising level of output?

(a) 0

(b) 1

(c) 5

(d) 10

(e) None of the above

Answer 1

The correct answer is (a) 0

If there is q>0 such that MR > MC then, In order to maximize profit a firm produces that quantity at which MR(Marginal Revenue) = Marginal Cost(MC)

If MR < MC for all q means that Additional cost required to produced one additional unit of output > Additional Revenue obtained by selling one additional unit of output. Then he should should down i.e. He should not produce any quantity because producing additional quantity will result in addition loss

Here,

MR = d(TR)/dq and TR = Total Revenue = Pq where P = Market price and q = quantity

Here P = 5 => TR = 5q => MR = d(TR)/dq = 5

Also it is given that MC = 10 + 10q

Hence MC > MR for all q > 0. Hence as discussed above there is no such q such that MR > MC. Hence he should shutdown.

Hence he should produce quantity = 0 units

Hence, the correct answer is (a) 0