Final answer:
To calculate total revenue, we multiply the price per unit by the quantity sold. Marginal revenue is equal to the price per unit. Total cost is the sum of fixed costs and variable costs. The profit-maximizing quantity of output is where marginal revenue equals marginal cost.
Step-by-step explanation:
To calculate total revenue, we multiply the price per unit by the quantity sold. For each output level, the revenue is calculated as follows:
- One unit: $20
- Two units: $40
- Three units: $60
- Four units: $80
- Five units: $100
Marginal revenue is the change in total revenue when one additional unit is produced and sold. For each output level, the marginal revenue is equal to the price per unit:
- One unit: $20
- Two units: $20
- Three units: $20
- Four units: $20
- Five units: $20
Total cost is the sum of fixed costs and variable costs. For each output level, the total cost is as follows:
- One unit: $40
- Two units: $45
- Three units: $55
- Four units: $70
- Five units: $100
Marginal cost is the change in total cost when one additional unit is produced and sold. For each output level, the marginal cost is as follows:
- One unit: $40
- Two units: $5
- Three units: $10
- Four units: $15
- Five units: $30
The profit-maximizing quantity of output is where marginal revenue equals marginal cost. From the table, we can see that this occurs at two units. On the diagram, the total revenue and total cost curves start at the fixed cost level and increase with the quantity of output, but the total cost curve is steeper because of the variable costs. The marginal revenue and marginal cost curves are horizontal lines at the price per unit and the variable cost per unit, respectively.