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Exhibit 10-8 Total Quantity Revenue 2 $117 3 Total Cost $99 5165 $129 $14 • #1141
Exhibit 10-8 Total Quantity Revenue 2 $117
3
Total Cost
$99
5165 $129 $14 • #1141.1. 10,411,41.11.* .404.1•00.01.000,41,
ramormismaimavillIMINIWIN46410.411.410410.10,10k 1111.111K4.411111410.11.10
average total cost at the profit maximizing level of output equals a. 23 b. 25.80 c. 29 d. 36
Expert Solution
| Computation of Average Total Cost at Profit-Maximizing Level Output: | |||||
| Quantity | Total Revenue | Total Cost | Marginal Revenue | Marginal Cost | Average Total Cost |
| (Q) | (TR) | (TC) | (MR) | (MC) | (ATC) |
| 2 | $117 | $99 | - | - | $49.50 |
| 3 | $135 | $107 | $18 | $8 | $35.67 |
| 4 | $152 | $116 | $17 | $9 | $29.00 |
| 5 | $165 | $129 | $13 | $13 | $25.80 |
| 6 | $176 | $144 | $11 | $15 | $24.00 |
Here,
Marginal Revenue = Change in Total Revenue / Change in Total Output
Marginal Cost = Change in Total Cost / Change in Total Output
Average Total Cost = Total Cost/Quantity
The Profit-maximizing output is where Marginal Revenue equals to Marginal Cost.
Marginal Revenue = Marginal Cost
In this case, When the quantity is 5, Marginal Revenue and Marginal Cost are equal ($13)
So,
Average Total Cost at Profit-Maximizing Level Output is $25.80
The correct option is B $25.80
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