The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2

-Assume that a firm's marginal revenue curve intersects the rising portion of the marginal cost curve at 100 units of output. At this output level, the profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $8 per unit, the firm should produce:
A)zero units of output.
B)less than 100 units of output.
C)100 units of output.
D)more than 100 units of output.
E)200 units of the output.

Question

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2
 
-Assume that a firm's marginal revenue curve intersects the rising portion of the marginal cost curve at 100 units of output. At this output level, the profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $8 per unit, the firm should produce:
A)zero units of output. 
B)less than 100 units of output. 
C)100 units of output. 
D)more than 100 units of output. 
E)200 units of the output.

Quizplus · Accepted Answer

To maximize profit, the firm should produce where marginal cost (MC) equals marginal revenue (MR), and where MR is greater than or equal to average variable cost (AVC). In this case, based on the information given in the question, the intersection of the marginal cost and marginal revenue curves occurs at 100 units of output.

At 100 units of output, the firm's total revenue would be: 
100 units x $8 per unit = $800

The firm's total variable cost at 100 units of output is $400, so its total cost would be: 
Total cost = Total fixed cost + Total variable cost = $600 + $400 = $1000

Its profit would be: 
Total revenue - Total cost = $800 - $1000 = -$200

Since the profit is negative, it may seem intuitive to produce fewer units or none at all. However, in the short run, the firm should continue to produce as long as its revenue covers its variable costs. In this case, the firm's revenue of $800 at 100 units of output covers its variable cost of $400, so it should continue to produce.

Therefore, the firm should produce 100 units of output to minimize losses in the short run.

The Table Given Below Reports the Marginal Revenue and Marginal