Question

Assume the total cost of producing widgets was $4200 for 42 units; $4257 for 43 units; $4332 for 44 units; and $4420 for 45 units. (a) What is the marginal cost of producing the 43rd unit? The 45th unit? (b) If the widget producer could sell at $60 per unit—however many he could produce—how many would he choose to produce? (c) If he could sell at $80 per unit—however many he could produce—how many would he choose to produce? Explain.

both parts are worth 3 marks so total 9 marks. Show your work.

9 points

Answer 1

Sol :

Quantity (Units)	TC ($)	MC
42	4200	-
43	4257	57
44	4332	75
45	4420	88

MC = TC_n - TC_n-1

(a) MC of 43 units = 4257 - 4200 = $57

MC of 45 unit = 4420 - 4332 = $ 88

(b) if selling price is $60 per units

So, he could sell till 43 unit because after it MC > MR

As , producer is in equilibrium, when following two condition are satisfied :

• Marginal Revenue = Marginal Cost
• MC must rise after equilibrium

So , if MC is greater than MR , he should stop producing units.

So, MC at 43 unit = $57

MR (Selling price) = $60

Since, MC > MR , he should produce till 43 unit.

(c) If Price is $80 (AR or MR) , then, producer should produce till 44 units of goods , because Till 44 units MR > MC and after that (i.e 45 unit) MC is greater than the MR , so there is loss in that units and producer should produce till 44 units and not after 44 unit.