Question

In order to maximize profit, how can a firm determine the quantity to produce and sell when considering the provided total cost and total revenue data in the table?

Answer 1

To maximize profit, a firm can compare total revenue and total cost data to determine the most profitable quantity to produce. In the given example, the firm makes losses at low output levels, earns profits at intermediate output levels, and experiences increasing losses at high output levels. The maximum profit occurs at an output between 70 and 80.

Step-by-step explanation:

To determine the quantity to produce and sell in order to maximize profit, a firm can compare the total revenue and total cost data provided. By finding the quantity at which total revenue exceeds total cost by the largest amount, the firm can identify the most profitable quantity to produce. In the given example, Table 8.1 shows that the firm makes losses at output levels from 0 to approximately 30, earns profits at output levels from 40 to 100, and makes increasing losses when output exceeds 100. The maximum profit occurs at an output between 70 and 80, where profit equals $90.