Question

Use the production and revenue table to answer the following question. Units of output Total cost Marginal cost Total revenue Marginal benefit 1 $5 -- $25 -- 2 $9 $4 $35 $10 3 $12 $3 $43 $8 4 $16 $4 $49 $6 5 $21 $5 $53 $4 6 $29 $6 $51 $-2 This table shows how much it costs for a company to produce x number of widgets, and how much revenue the company makes for each additional widget produced. Based on the table, how many widgets should the company produce? A 3 B 4 C 5 D

Answer 1

To maximize profit, the company should produce the quantity where marginal cost equals marginal benefit (revenue). Looking at the table, at quantity 4, the marginal cost is $4 and the marginal benefit (revenue) is $6. At this point, the company is still gaining more revenue than the cost, so it should produce 4 widgets. Therefore, the answer is B: 4.