Chapter 53, Problem 1FRQ

a)

To determine

Marginal revenue of the fourth unit

Explanation of Solution

Quantity	Total revenue	Total cost	Profit (TR-TC)	Marginal revenue
0	$0	$7	(0-7) = -7
1	18	23	(18-23) = -5	18
2	36	29	7	18
3	54	37	17	18
4	72	49	23	18
5	90	65	25	18
6	108	87	21	18
7	126	112	14	18

The marginal revenue of the fourth unit is 18.

Economics Concept Introduction

Introduction: Marginal revenue is the benefit or revenue that is occurred by using an addition unit of the good which is calculated by subtracting the old total revenue from the new total revenue.

b)

To determine

Profit at a quantity of two

Explanation of Solution

Quantity	Total revenue	Total cost	Profit (TR-TC)
0	$0	$7	(0-7) = -7
1	18	23	(18-23) = -5
2	36	29	7 (36-29)
3	54	37	17
4	72	49	23
5	90	65	25
6	108	87	21
7	126	112	14

Profit at quantity of two is 7.

Economics Concept Introduction

Introduction: Profit is the difference between the total revenue and total cost.

c)

To determine

Profit maximizing level of output

Explanation of Solution

Quantity	Total revenue	Total cost	Profit (TR-TC)	Marginal revenue	Marginal cost
0	$0	$7	(0-7) = -7
1	18	23	(18-23) = -5	18	16
2	36	29	7	18	6
3	54	37	17	18	8
4	72	49	23	18	12
5	90	65	25	18	16
6	108	87	21	18	22
7	126	112	14	18	25

The profit maximizing level of output is 5.

To determine the profit-maximizing level of output, the optimal output rule is used by stating MR = MC but in this case, MR is not equal to MC and then the firm needs to produce the highest level of quantity when MR exceeds MC.

At the level of highest profit, MC is $16, MR is $18 and quantity is 5 but in the 6th unit of output MR ($18) is lower than MC ($22) which shows the additional unit adds more cost to achieve the highest level of quantity than the total revenue.

Economics Concept Introduction

Introduction: Profit is the difference between the total revenue and total cost.