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Homework answers / question archive / Consider the total cost and total revenue schedules of two firms:     Gulp and Devour Shady Enterprise Output TC TR TC TR 1

Consider the total cost and total revenue schedules of two firms:     Gulp and Devour Shady Enterprise Output TC TR TC TR 1

Accounting

Consider the total cost and total revenue schedules of two firms:

 

  Gulp and Devour Shady Enterprise
Output TC TR TC TR
1. 100 135 50 160
2. 200 260 125 300
3. 300 375 225 420
4. 400 480 350 520
5. 500 575 500 600
6. 600 660 675 660
7. 700 735 875 700
8. 800 800 1100 720

 

What is the profit-maximizing output in each case? Show that three criteria are equivalent: marginal cost equals marginal revenue, maximum profit, and marginal profit equals zero.

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Gulp and Devour

 

Output 1 2 3 4 5 6 7 8
TC 100 200 300 400 500 600 700 800
TR 135 260 375 480 575 660 735 800
AC 100 100 100 100 100 100 100 100
MC 0 100 100 100 100 100 100 100
MR 0 125 115 105 95 85 75 65
AR 135 130 125 120 115 110 105 100
Profit 35 60 75 80 75 60 35 0
MP 0 25 15 5 -5 -15 -25 -35

Shady Enterprise

 

Output 1 2 3 4 5 6 7 8
TC 50 125 225 350 500 675 875 1100
TR 160 300 420 520 600 660 700 720
AC 50 62.5 75 87.5 100 112.5 125 137.5
MC 0 75 100 125 150 175 200 225
MR 0 140 120 100 80 60 40 20
AR 160 150 140 130 120 110 100 90
Profit 110 175 195 170 100 -15 -175 -380
MP 0 25 15 5 -5 -15 -25 -35

CONCLUSION

Profit is highest at 4 units for Gulp and Devour and 3 units for Shady Enterprise. At this output, the MR and MC are closest to each other as they are not equal at any of the output level.

Basic formulas

MarginalCost(MC)=ΔTCΔOutputAverageCost(AC)=TCOutputMarginalRevenue(MR)=ΔTRΔOutputMarginalCost(MC)=ΔTCΔOutputAverageCost(AC)=TCOutputMarginalRevenue(MR)=ΔTRΔOutput

AverageRevenue(AR)=TROutputProfit=TR−TCMarginalProfit(MP)=ΔProfitΔOutput

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