Demand and Total Cost of Production

The following questions refer to the following tables which show the demand for a firm's product and the firm's total cost of production.

-Refer to Demand and Total Cost of Production.According to the equimarginal principle,how many units should the firm produce in order to maximize its profit?
A) 2 units.
B) 3 units.
C) 4 units.
D) 5 units.

Question

Demand and Total Cost of Production

The following questions refer to the following tables which show the demand for a firm's product and the firm's total cost of production.

-Refer to Demand and Total Cost of Production.According to the equimarginal principle,how many units should the firm produce in order to maximize its profit?
A) 2 units. 
B) 3 units. 
C) 4 units. 
D) 5 units.

Quizplus · Accepted Answer

The equimarginal principle states that a firm should produce the quantity of output where marginal revenue equals marginal cost. In this case, the marginal revenue for each unit sold is $50, and the marginal cost for each additional unit produced is as follows:
- For the first unit: $50
- For the second unit: $45
- For the third unit: $50
- For the fourth unit: $55
- For the fifth unit: $60

Therefore, the firm should produce 3 units in order to maximize its profit. At this output level, the marginal revenue ($50) is equal to the marginal cost ($45), which is the point where the firm's profit is at a maximum. If the firm were to produce more than 3 units, the marginal cost would increase and the profit would decrease.