Question

The table below shows the total cost (TC) and marginal cost (MC) for Baker Street, a perfectly competitive firm producing different quantities of apple pies. The market price of apple pies is $8.00 per pie. a. Fill in the marginal revenue (MR) and average revenue (AR) columns. Instructions: Round your answers to two decimal places. Baker Street's Costs and Revenues Quantity (apple pies) TC (dollars) MC (dollars) MR (dollars) AR (dollars) 20 $115.00 $5.00 $ $ 25 137.50 4.50 30 162.50 5.00 35 192.50 6.00 40 232.50 8.00 45 282.50 10.00 Instructions: Enter your answers as a whole number. b. At the market price of $8.00 per apple pie, how many apple pies should Baker Street make? apple pies c. If the market price for apple pies were to rise to $10.00 per apple pie, how many apple pies should Baker Street make? apple pies

Answer 1

a.

Quantity, Q	TC	MC	Total Revenue, TR = P*Q = 8Q	Marginal Revenue, MR = Change in TR/Change in Q	Average Revenue, AR = TR/Q
20	115	5	8*20 = 160	8	160/20 = 8
25	137.5	4.5	8*25 = 200	(200-160)/(25-20) = 40/5 = 8	200/25 = 8
30	162.5	5	240	8	240/30 = 8
35	192.5	6	280	8	8
40	232.5	8	320	8	8
45	282.5	10	360	8	8

b. P = MC = $8.00 for Q = 40. So, the profit maximizing baker should make 40 pies at a price of $8.00

c. P = MC = $10.00 for Q = 45. So, the profit maximizing baker should make 45 pies at a price of $10.00