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How to find the profit maximizing level of output.

Output FC VC TC TR Profit/Loss
0 100 0
1 100 100
2 100 180
3 100 300
4 100 440
5 100 600
6 100 780

A. Complete the table
B. At what output rate does the firm maximize proft or minimize loss?
C. What is the firm's marginal revenue at each positive level of output? its average revenue?
D. What can we say about the relationship between marginal revenue and marginal cost for output rates below the profit-maximizing for loss-minimizing rate? For output rates above the profit-maximizing or loss-minimizing rate?

Solution Preview

Output FC VC TC TR Profit/Loss MC
0 100 0 100 0 -100 ---
1 100 100 200 140 -60 100
2 100 180 280 280 0 80
3 100 300 400 420 20 120
4 100 440 540 560 20 140
5 100 600 700 700 0 160
6 100 780 880 840 -40 180

A. Complete the table

First, recall that TC=FC + VC
so we fill in the TC column by simply adding the first two columns.

Second, ...

Solution Summary

The following begins with data on fixed and variable costs for various levels of output. A data table is completed and the profit maximizing level of output is computed. A narrative explaining the process is included as well that discusses the nature of the relationship between MR, MC, and producing at different levels of output.

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