Final answer:
The profit-maximizing quantity is 2 units because it is the output level where marginal cost equals marginal revenue. The total revenue and total cost curves would show the relationship between quantity and revenue/cost. The marginal revenue and marginal cost curves would indicate the change in revenue/cost with each additional unit produced/sold.
Step-by-step explanation:
To determine the profit-maximizing quantity, we need to analyze the total revenue and total cost at each output level. Using the given information, we can calculate the total revenue, marginal revenue, total cost, and marginal cost for each output level of one to five units.
Output LevelTotal RevenueMarginal RevenueTotal CostMarginal Cost1$52-$84-2$104$52$109$253$156$52$134$254$208$52$184$505$260$52$254$70
From the table, we can see that the profit-maximizing quantity is 2 units because it is the output level where marginal cost equals marginal revenue. At this quantity, the firm maximizes its profit by producing and selling 2 units.
On one diagram, the total revenue and total cost curves would be plotted, with the quantity on the x-axis and the revenue/cost on the y-axis. The total revenue curve would start at $0 and increase by $52 for each additional unit sold. The total cost curve would start at $84 and increase by $25 for each additional unit produced.
On another diagram, the marginal revenue and marginal cost curves would be plotted, with the quantity on the x-axis and the revenue/cost on the y-axis. The marginal revenue curve would be a straight line parallel to the x-axis, indicating that each additional unit sold adds the same amount to revenue. The marginal cost curve would start at $25 and increase by $25 for each additional unit produced.