The following figure depicts a specific firm's production with respect to the number of machine used.

-Refer to the figure above.If the rental price of machines is $80 per day and the value of one unit of output is $20,how many machines should the firm rent to maximize profits?

Question

The following figure depicts a specific firm's production with respect to the number of machine used.
 
-Refer to the figure above.If the rental price of machines is $80 per day and the value of one unit of output is $20,how many machines should the firm rent to maximize profits?

Quizplus · Accepted Answer

The optimal number of machines to rent is where the marginal cost equals the marginal revenue. Looking at the graph, we can see that at 4 machines, the marginal cost curve (MC) intersects with the marginal revenue curve (MR). Therefore, the firm should rent 4 machines to maximize profits. At this level of output, the total cost (TC) is $320 and the total revenue (TR) is $400, resulting in a profit of $80.

The Following Figure Depicts a Specific Firm's Production with Respect