Final answer:
To calculate the total revenue, marginal revenue, total cost, and marginal cost for each output level, multiply the price by the quantity sold, and subtract the previous level's value for marginal revenue or marginal cost from the current level's value. The profit-maximizing quantity of output is the point at which marginal revenue equals marginal cost, which in this case is 4 units.
Step-by-step explanation:
To calculate the total revenue for each output level, multiply the price per unit by the quantity sold. For example, if the output level is one unit, the total revenue is $20 (1 unit × $20). To calculate the marginal revenue, subtract the total revenue of the previous output level from the total revenue of the current output level. For example, if the output level increases from one unit to two units, the marginal revenue is $5 ($25 - $20).
To calculate the total cost, sum the fixed costs and variable costs for each output level. For example, if the output level is one unit, the total cost is $40 ($20 fixed costs + $20 variable costs). To calculate the marginal cost, subtract the total cost of the previous output level from the total cost of the current output level. For example, if the output level increases from one unit to two units, the marginal cost is $5 ($45 - $40).
The profit-maximizing quantity of output is the point at which marginal revenue equals marginal cost. In the table, find the output level at which marginal revenue is equal to marginal cost. This quantity represents the level of output that will maximize the firm's profit.
Total Revenue, Marginal Revenue, Total Cost, and Marginal Cost for Each Output Level:
Output LevelTotal RevenueMarginal RevenueTotal CostMarginal Cost1$20-$40-2$40$20$65$253$60$20$100$354$80$20$150$505$100$20$230$80
The profit-maximizing quantity of output is 4 units, as this is the point where marginal revenue equals marginal cost.