Final answer:
To calculate total revenue, multiply the selling price per unit by the number of units sold at each output level. Total cost is the sum of fixed costs and variable costs at each output level. The profit maximizing quantity is when marginal revenue equals marginal cost, which is four units in this case.
Step-by-step explanation:
To calculate total revenue, we multiply the selling price per unit ($72) by the number of units sold at each output level. For example, at one unit, the total revenue is $72.
On the other hand, to calculate total cost, we add the fixed costs ($100) to the variable costs at each output level.
For example, at one unit, the total cost is $164 ($100 + $64). With this information, we can calculate marginal revenue by subtracting the total revenue at each level from the total revenue at the previous level.
For example, the marginal revenue at two units is $72 (total revenue at two units) - $72 (total revenue at one unit).
Similarly, marginal cost can be calculated by subtracting the total cost at each level from the total cost at the previous level.
For example, the marginal cost at two units is $20 ($164 at two units) - $164 (total cost at one unit).
The profit maximizing quantity, also known as the optimal output level, occurs when marginal revenue equals marginal cost, which is at four units in this case.
Here is a summary of the calculations:
- Quantity
- Total Revenue (TR)
- Marginal Revenue (MR)
- Total Cost (TC)
- Marginal Cost (MC)
- 1
- $72
- $72
- $164
- N/A
- 2
- $144
- $72
- $248
- $84
- 3
- $216
- $72
- $362
- $114
- 4
- $288
- $72
- $546
- $184
- 5
- $360
- $72
- $816
- $270
For the graphs, the total revenue and total cost curves will be upward sloping, and the marginal revenue and marginal cost curves will intersect at the profit maximizing quantity of four units.