Question

Tony's taco truck has an average variable cost of:

a) $1.50
b) $2.00
c) $1.00
d) $3.00

Answer 1

To calculate the total revenue and total cost at each output level, use the formula price x quantity. The profit-maximizing quantity of output is where marginal revenue equals marginal cost.

Step-by-step explanation:

To calculate the total revenue at each output level, we multiply the price of the aquariums by the number of units sold. For example, at an output level of one unit, the total revenue is $20.0 x 1 = $20.0. For the marginal revenue, we calculate the change in total revenue when producing one additional unit. For example, when going from two units to three units, the change in total revenue is $35 - $25 = $10.0.

To calculate the total cost at each output level, we add the fixed cost of $20.0 to the variable cost. For example, at an output level of one unit, the total cost is $20.0 + $20.0 = $40.0. For the marginal cost, we calculate the change in total cost when producing one additional unit. For example, when going from three units to four units, the change in total cost is $50 - $35 = $15.0.

The profit-maximizing quantity of output is where marginal revenue equals marginal cost. Looking at the table, we can see that this occurs at an output level of four units. At this level, both marginal revenue and marginal cost are $15.0.