Assuming a market price of $4, fill in the columns in the following table. What is the profit-maximizing level of production? What are the two ways to determine the profit-maximizing level of production?
Quantity Total Revenue (TR)
Total Cost (TC)
Profit Marginal Revenue (MR)
Marginal Cost (MC)
0 3
1 5
2 6
3 9
4 14
5 20
6 28
7 40
Quantity Total Revenue
(TR)
Total Cost (TC)
Profit
Marginal Revenue (MR)
Marginal Cost (MC)
0 0 3 -3 --- ---
1 4 5 -1 4 2
2 8 6 2 4 1
3 12 9 3 4 3
4 16 14 2 4 5
5 20 20 0 4 6
6 24 28 -4 4 8
7 28 40 -12 4 12
The profit-maximizing level of production is 3 units, which can be determined by the greatest difference between total revenue and total cost, which is equal to profit, and can also be determined where marginal revenue is equal to marginal cost (or marginal revenue is the closest to marginal cost, without being below marginal cost).
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