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# Short Run Profit Margin

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1. Locate and explain how the optimal output maximizes the per unit profit (II).
2. What happens to profit if outputs are below or above the optimal output level?
3. Summarize the short run profit. Use numbers.

Refer to the attached image for more information on the numbers to include in the calculations and how to present the numbers in a table.

https://brainmass.com/economics/short-and-long-run-cost-functions/short-run-profit-margin-593246

#### Solution Preview

See the attached file.

1. Locate and explain how the optimal output maximizes the per unit profit (II).
Let's complete the table by the following calculation:
Total Revenue = Price * Quantity, i.e. TR = P*Q
e.g., TR(1) = 1*5 = 5, and TR(2) = 2*5 = 10

Marginal Revenue (MR) = change in TR for an additional unit of Q.
e.g., MR for Q=2 is TR(2) - TR(1) = 10-5 = 5

Marginal Cost (MC) = change in TC for an additional unit of Q.
e.g., MC for Q=2 is TC(2) - TC(1) = 18.50-17.00 = 1.50

Average Total Cost (ATC) = TC/Q
e.g., ATC(2) = 18.50/2 = 9.25

Gross Profit = TR - TC
e.g., Profit(2) = 10-18.50 = -8.50

Per Unit Profit = Gross Profit / Q
e.g., Per Unit Profit (2) = -8.50/2 = ...

#### Solution Summary

The solution presents the formulas of Total Revenue, Marginal Revenue, Marginal Cost, Average Total Cost, Gross Profit, and Per Unit Profit.
It shows the calculation of these numbers using an EXCEL spreadsheet.
It provides a detailed explanation about how the gross profit and per unit profit are maximized.

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