Question

1. What is the formula for Marginal Revenue? Explain what this formula tells us. Provide an example to demonstrate this concept.

3. When is production profitable? Describe three different scenarios where the following takes place:

TR >TC

TR=TC

TR<TC

For each of the scenarios above, indicate whether or not the firm is profitable, incurring a loss, or breaking even.

8. What is the short-run production decision of the firm? In particular, describe what is different about short-run production compared to long-run production. Why is this significant or meaningful?

Answer 1

1. What is the formula for Marginal Revenue? Explain what this formula tells us. Provide an example to demonstrate this concept.

MR= change in total revenue / change in quantity

MR is the extra revenue generate by the firm when selling one extra unit. MR can be find by the dividing change in the TR by change in the quantity. MR helps to identify the firm profit maximizing output.

Example:

Q	TR	MR
0	0
1	100	100
2	150	50
3	210	210

here in the above example TR is 100. for quantity 1 so we can calculate MR as below

MR=Change in TR/change in quantity

=(100-0)/(1-0)

=100.

same calculation will be done for next quantities.

3. When is production profitable? Describe three different scenarios where the following takes place:

TR >TC

TR=TC

TR<TC

For each of the scenarios above, indicate whether or not the firm is profitable, incurring a loss, or breaking even.

When TR > TC production is profitable.

each of the scenarios above, indicate whether or not the firm is profitable, incurring a loss, or breaking even.

TR >TC= profitable

TR=TC= Break even

TR<TC= incurring loss.