Question

XYZ Clinic offers a dentistry treatment.

You are the manager, the owner asks you how much to charge to maximize profits.

The demand curve for the treatments and their total costs are given in table 1.

a. For each level of output, calculate total revenue, marginal revenue, average cost, and marginal cost.

b. What is the profit-maximizing level of output for the treatments and how much will the firm earn in profits?

Table 1

Quantity	Price	Total Revenue	Marginal Revenue	Total Cost	Marginal Cost	Average Cost
0	23		–	340.00
20	20			400.00
30	18			480.00
40	16			580.00
50	14			700.00
60	12			840.00
70	10			1020.00
80	8			1280.00

Answer 1

a) Formulae used for calculations-
Total Revenue (TR) = Price x Quantity
Marginal Revenue (MR) = Change in TR / Change in Q
Marginal cost (MC) = Change in TC / Change in Q
Average Cost (AC) = TC / Q

Quantity	Price	Total Revenue	Margina Revenue	Total Cost	Marginal cost	Average Cost
0	23	-	-	340	-	-
20	20	400	20	400	3	20
30	18	540	14	480	8	16
40	16	640	10	580	10	14.5
50	14	700	6	700	12	14
60	12	720	2	840	14	14
70	10	700	-2	1020	18	14.6
80	8	640	-6	1280	26	16

b) We know that, a firm's profit maximizing units of quantity is when the marginal cost equals to the marginal revenue. Therefore, the profit maximizing level of output of the treatments would be where the MR = MC i.e., 40, ( MR = MC = 10 ).
The profits earned by the firm will be ( TR - TC ), that is, 640 - 580 = 60
Therefore, the firm will earn profits of 60.