Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $5 per unit, the firm should produce

Question

Quizplus · Accepted Answer

Since the marginal revenue equals rising marginal cost at 100 units of output, the firm should produce 100 units of output to maximize profit.

To determine the profit at this output level, we can use the following formula:

Total Profit = Total Revenue - Total Cost

Total Revenue = Price per unit x Quantity

Total Revenue = $5 x 100 = $500

Total Cost = Total Fixed Cost + Total Variable Cost

Total Cost = $600 + $400 = $1000

Total Profit = $500 - $1000 = -$500

Since the total profit is negative, the firm is making a loss at this output level. However, producing any other quantity of output would result in an even higher loss, so the firm should still produce 100 units of output.

Assume That Marginal Revenue Equals Rising Marginal Cost at 100