E. The assumption of profit maximization, where profit (t) is equal to the difference betweentotal revenue (TR) and total cost (TC), is essential in microeconomics. To maximize profit,the firm selects the quantity of output (Q) where marginal revenue (MR) equals marginalcost (MC).a. Given the demand function P = 70 – 10Q, find the total revenue function (Hint: TR =Px Q).b. Using the total revenue function, find the corresponding marginal revenue function.C. Find the marginal cost function using the total cost function given byTC(Q) = 175 – 50Q + 20Q²d. Find the profit maximizing quantity of output.

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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E. The assumption of profit maximization, where profit (t) is equal to the difference between
total revenue (TR) and total cost (TC), is essential in microeconomics. To maximize profit,
the firm selects the quantity of output (Q) where marginal revenue (MR) equals marginal
cost (MC).
a. Given the demand function P = 70 – 10Q, find the total revenue function (Hint: TR =
Px Q).
b. Using the total revenue function, find the corresponding marginal revenue function.
C. Find the marginal cost function using the total cost function given by
TC(Q) = 175 – 50Q + 20Q²
d. Find the profit maximizing quantity of output.

Expert Solution

Step 1 Introduction to the concept

The total revenue refers to the amount received by selling the total quantity of output. It is equal to the product of price and quantity sold.

The marginal revenue refers to the amount received by selling an additional unit of output. It is the derivative of total revenue. Hence by differentiating the total revenue equation you can easily find out the marginal revenue.

The marginal cost refers to the cost of producing an additional unit of output. The marginal cost is a variable cost as it gets changes with respect to the change in the level of output. It can be calculated by differentiating the total cost function.
Total cost refers to the sum of variable cost as well as the fixed cost. TC = TFC + TVC

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