The follow mg diagram shows the profit curve of a firm producing Good X. Restrict your
answers involving levels of output to output to between 0 and 50. You can assume that the
firm\'s profit continues to decline for levels of levels of output above 45. Estimate the level(s) of
output at which the firm\'s profit is at a local maximum. Estimate the firm\'s maximum profit.
Estimate the range (s) of output over which the firm\'s average revenue is greater than its average
cost. Estimate the range(s) of output over which the firm\'s marginal revenue is greater than its
marginal cost. Estimate the firm\'s total cost at X = 0.
Solution
1. From the graph, it is evident that the profit of the firm is maximum when the quantity is 30-32
units.
2. Form the graph, the firm\'s maximum profit is $37.5 when the quantity is 30-32 units.
3. At around 18 units and 41 units of output, the profit = 0. At this point the average revenue
equals the average cost. Between these output range, the average revenue is greater than average
cost.
Therefore, the range of output is 18 to 41 units.
4. Profits are maximised when MR = MC. In this case maximum profit is achieved when the
quantity is 30-32 units. Till that point MR > MC and after this point, MR < MC.
Therefore, the range of output is 18 - 32 units.
5. Firm\'s total cost when X = 0 is the fixed cost which occurs irrespective of the units produced.
In this case, the profit is -20 when the output is X. This represents the fixed cost of the product
and also the total cost when X = 0.
The follow mg diagram shows the profit curve of a firm producing .pdf
1. The follow mg diagram shows the profit curve of a firm producing Good X. Restrict your
answers involving levels of output to output to between 0 and 50. You can assume that the
firm's profit continues to decline for levels of levels of output above 45. Estimate the level(s) of
output at which the firm's profit is at a local maximum. Estimate the firm's maximum profit.
Estimate the range (s) of output over which the firm's average revenue is greater than its average
cost. Estimate the range(s) of output over which the firm's marginal revenue is greater than its
marginal cost. Estimate the firm's total cost at X = 0.
Solution
1. From the graph, it is evident that the profit of the firm is maximum when the quantity is 30-32
units.
2. Form the graph, the firm's maximum profit is $37.5 when the quantity is 30-32 units.
3. At around 18 units and 41 units of output, the profit = 0. At this point the average revenue
equals the average cost. Between these output range, the average revenue is greater than average
cost.
Therefore, the range of output is 18 to 41 units.
4. Profits are maximised when MR = MC. In this case maximum profit is achieved when the
quantity is 30-32 units. Till that point MR > MC and after this point, MR < MC.
Therefore, the range of output is 18 - 32 units.
5. Firm's total cost when X = 0 is the fixed cost which occurs irrespective of the units produced.
In this case, the profit is -20 when the output is X. This represents the fixed cost of the product
and also the total cost when X = 0
