Final answer:
To calculate total revenue, multiply the selling price per unit by the quantity sold. Marginal revenue is the change in total revenue when one additional unit is sold. Total cost is the sum of fixed costs and variable costs. Marginal cost is the change in total cost when one additional unit is produced. The profit maximizing quantity is the level of output where marginal revenue equals marginal cost.
Step-by-step explanation:
To calculate total revenue, you multiply the selling price per unit by the quantity sold. For example, if one unit is sold, total revenue is $72. If two units are sold, total revenue is $144. Marginal revenue is the change in total revenue when one additional unit is sold. It is equal to the selling price per unit. Total cost is the sum of fixed costs and variable costs. Marginal cost is the change in total cost when one additional unit is produced. It is calculated by subtracting the total cost of the previous output level from the total cost of the current output level.
The profit maximizing quantity is the level of output where marginal revenue equals marginal cost. In this case, it is four units, where marginal revenue is $72 and marginal cost is $184. At this quantity, the firm maximizes its profit.
On the first diagram, the total revenue curve would start at $0 for zero units and increase linearly at a rate of $72 per unit. The total cost curve would start at $100 for one unit and increase at different rates for each output level. On the second diagram, the marginal revenue curve would be a horizontal line at $72. The marginal cost curve would start at $700 for one unit and increase at different rates for each output level.