Answered: Using the graph on the next page, do…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Using the graph on the next page, do the following problems: Determine the profit maximizing level of output when the market price for the good is $75/unit. Show this on the graph by making the appropriate drawing (with a straight-edge). Also, write the number (an appropriate estimate should be made) below the graph. • On the graph, show the maximum total profit that can be generated by the firm based on the market price. Do NOT calculate the value - show the appropriate box on the graph. Be careful in your (straight) lines. Be clear as to the part of the graph that represents the profit. Use shading as appropriate. • Below the graph, write the interpretation of the values of the marginal cost (MC) and the average total cost (ATC) at the profit-maximizing level of output; make sure to use all the appropriate names and units. Write the values and interpretations below the graph. • Answer the following questions: If the market price of the good falls, the profit maximizing level of output will (circle the appropriate answer): Fall Increase Stay the same You can't tell If the producer increases production beyond the profit-maximizing level of output, the marginal cost will do what with respect to the marginal revenue? Fall Increase Stay the same You can't tell SHOW WORK. WRITE ON GRAPH

Price
105
100
95
90
85
80
70
65
60
$5
50
45
40
35
30
2.5
70
15
5
0
0
5
1
10
MC
15
ATC
20
25
30
Quantity
83
40
49
50
59

Expert Solution

Introduction

The marginal cost (MC) curve is calculated by dividing the change in total cost by the change in output.

Total cost is divided by total quantity produced to obtain average total cost (ATC). The average total cost curve is U-shaped.

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