Homework SourseSuppose that the firm is required to produce a whole number
Suppose that the firm is required to produce a whole number of items each month. How much does it produce and at what price? How do you know?
Demand
Total Cost
P($)
Q
Q
TC($)
20
1
1
2
18
2
2
6
16
3
3
11
14
4
4
18
12
5
5
26
| Suppose that the firm is required to produce a whole number of items each month. How much does it produce and at what price? How do you know? | |||
| Demand | Total Cost | ||
| P($) | Q | Q | TC($) |
| 20 | 1 | 1 | 2 |
| 18 | 2 | 2 | 6 |
| 16 | 3 | 3 | 11 |
| 14 | 4 | 4 | 18 |
| 12 | 5 | 5 | 26 |
Solution
A firm produces till marginal cost equals marginal revenue. This is at q =4
The firm will produce 4 units at price =14.
Marginal cost is the additional cost incurred by producing 1more unit of output. Similarly, marginal revenue is the additional revenue earned by selling one more unit of output.
| P | q | tr=pq | mr=dtr/dq | mc =dtc/dq |
| 1 | 20 | 6-2=4 | ||
| 2 | 36 | 36-20=16 | 11-6=5 | |
| 3 | 48 | 48-36=12 | 18-11 = 7 | |
| 4 | 56 | 56-48=8 | 26-18=8 | |
| 5 | 60 | 60-56=4 |
