The graph to the right shows cost and revenue as functions o

The graph to the right shows cost and revenue as functions of number of units of a product produced and sold. You need to decide which graph is the cost function and which graph is the revenue function. Estimate marginal cost and marginal revenue at 40 units. Label appropriately. Estimate the number of units produced and sold where marginal cost and marginal revenue arc equal. Estimate the number of units that should be produced and sold in order to generate maximum possible profit. Is profit increasing or decreasing at 40 units produced and sold? Explain your conclusion using marginal cost and marginal revenue. Estimate a production level where average cost and marginal cost are equal.

Solution

2. Solution : It is clear from the graph that when the 85 number of units are produced then the marginal cost and marginal revenue are equal.

3. At the production or sell 90 units, the profit will be maximum.

As at this point the marginal cost is low and marginal revenue is heigh.

We know that,    Profit = Revenue - cost.

4. Profit decreasing at the 90 units produced or sold as the marginal cost is higher and marginal revenue is lower.

5. At the 70 units of production level the average cost and the marginal cost are equal.