The follow mg diagram shows the profit curve of a firm producing .pdf

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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.

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Fundamentals of Economics A. Profit Maximization Profit Maximization is the determination of the best output in relation to price levels so that returns for the firm are maximized. A company usually has profit goals that must be reach, so various strategies such as reducing production costs, adjusting sale prices, and maximizing output levels are used. A company should always use profit maximization methods, but these methods may negatively affect consumers if the method results in poor-quality product or higher prices. Two main methods are use in profit maximization: a) Total Cost-Total Revenue Method and b) Marginal Cost-Marginal Revenue Method. a) Total revenue to total cost Total revenue less total cost is the profit, expressed as Π = TR – TC. Total revenue is the total amount of money the company receives from selling its products, or from other aspects of its business operations. Total cost is the sum of all aspects of the company’s production and operations, including non-monetary costs. Non-monetary costs include items that were not paid in cash but were incurred, like the time spent by the owner managing the business, or the equivalent cost of using the land or machineries of the owners, as if they are being rented. If non-monetary costs will not be included in the computation of revenue, an accounting profit will result, but it will not be the actual economic profit. To obtain the economic profit, all explicit and implicit costs should be accounted for, including opportunity costs. To find out how much profit the firm actually make, costs have to be determined. All the information can be derived from ATC. As ATC = TC/Q, so TC = ATC x Q. Profit maximization levels can be found by the simple multiplication and subtraction approach. Profit maximization = Total Revenue (TR) – Costs (C). (NEWLY ADDED) Criterion Score:2.00 Comments on this criterion (optional): The submission explains Total Revenue and Total Cost. However, the point at which profit maximization is reached and how it is recognized using total revenue and total cost as criteria could not be located in the submission. Please revise and resubmit. b) Marginal revenue to marginal cost Marginal revenue is the added revenue when one more unit of output is sold. The profit maximizing level of output for monopolists is arrived at after equating its marginal revenue and its marginal cost. This is also the same condition for profit maximization that a perfectly competitive firm uses in determining its output equilibrium level. Marginal revenue equals marginal cost is the condition firms in different market structures use in determining their profit maximizing level of output. Marginal cost is the cost of the additional unit, or the cost of produce one more unit. It is hard to determine the exact cost of the last unit, but the average cost of a group of units can easily be calculated. The change in costs from a previous level is divided by the change in quantity fr.

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