Exhibit 8-4

-Consider Exhibit 8-4. If the market price is $8.50, what are the profit-maximizing output and profit?

Question

Exhibit 8-4
 
-Consider Exhibit 8-4. If the market price is $8.50, what are the profit-maximizing output and profit?

Quizplus · Accepted Answer

To find the profit-maximizing output, we need to look at where marginal revenue (MR) equals marginal cost (MC). At a market price of $8.50, the corresponding quantity demanded is 130. At output levels below 40, MR is greater than MC, indicating that the firm should increase production. At output levels above 40, MC is greater than MR, indicating that the firm should decrease production. Therefore, the profit-maximizing output is 40. 
To find the profit at this output, we first need to calculate total revenue (TR) by multiplying the market price ($8.50) by the output (40), which equals $340. We also need to calculate total cost (TC) by adding fixed cost ($50) to total variable cost (TVC) at an output of 40 units, which equals $255. Therefore, profit equals TR minus TC, which equals $85 - $50 = $35.

Exhibit 8-4 -Consider Exhibit 8-4. If the Market Price Is $8.50, What