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Given data for Total Cost and Total Revenue, calculate how much output a firm should produce to maximize profit. Show the result graphically.

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Consider total cost and total revenue given in the table below:
quantity total cost total revenue
0 $8 0
1 $9 8
2 $10 16
3 $11 24
4 $13 32
5 $19 40
6 $27 48
7 $37 56
a. Calculate profit for each quantity. How much should the firm produce to maximize profit?
b. Calculate marginal revenue and marginal cost for each quantity. Graph them. At what quantity do these curves cross? How does this relate to your answer to part (a)?
c. Can you tell whether this firm is in a competitive industry? If so, can you tell whether the industry is in a long-run equilibrium?

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Solution Summary

A graph illustrating how to calculate a firm's profit maximization point using the MR=MC method.

Solution Preview

a) See the attached file. The firm should produce 6 units for a maximum profit of $21.
b) The curves ...

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