What is marginal revenue? Based on the provided schedule from the Chesapeake Bay Swing Company, at which quantity should Chesapeake Bay stop producing additional swings?
Quantity
Marginal Revenue
Marginal Cost
Total Profit
1
$260
$160
$200
2
110
140
270
3
190
120
340
4
170
140
370
5
160
160
370
6
150
180
340
7
120
220
240
What will be an ideal response?
Marginal revenue is the extra revenue associated with selling an extra unit of output. As long as the revenue of the last unit produced and sold is greater than the cost of the last unit produced and sold, the firm should continue manufacturing.
The student should find the point in the schedule where marginal revenue is equal to marginal cost, which is at 5 units. The firm would not stop producing at 4 units, even though the addition of the fifth unit did not add any profits. This is because the firm could not determine an increase or decrease in profits after the fourth unit until an additional unit had been produced.
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