Assume that the marginal revenue curve intersects the rising portion of the marginal cost curve 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 $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

Quizplus · Accepted Answer

At the intersection of marginal revenue and marginal cost, the firm is maximizing its profit. Therefore, the firm should produce at this output level.

Total cost at this output level can be calculated as follows:

Total cost = Total fixed cost + Total variable cost 
Total cost = $600 + $400 
Total cost = $1000

Since the price per unit is $8, the total revenue earned by the firm at 100 units of output will be:

Total revenue = Price per unit x Quantity 
Total revenue = $8 x 100 
Total revenue = $800

Now, we can calculate the profit:

Profit = Total revenue - Total cost 
Profit = $800 - $1000 
Profit = -$200

Since the profit is negative, the firm is incurring losses at this output level. However, producing any other level of output will result in even greater losses. Therefore, the best choice for the firm is to produce 100 units of output.

Assume That the Marginal Revenue Curve Intersects the Rising Portion