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    Lab 3

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    Sofia Sharma
    The document provides information to calculate total revenue (TR), total cost (TC), marginal revenue (MR), and marginal cost (MC) for a firm up to an output level of 12 units. Two tables and two figures are presented showing the calculations and graphs. The summary is: 1) TR, TC, and profits are calculated up to an output of 12 units, with the maximum profit of Rs. 240 occurring at an output of 5 units. 2) MR and MC are also calculated up to an output of 12 units, with the profit maximizing output again being 5 units where MR equals MC.

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    Lab 3

    Uploaded by

    Sofia Sharma
    14 views3 pages
    The document provides information to calculate total revenue (TR), total cost (TC), marginal revenue (MR), and marginal cost (MC) for a firm up to an output level of 12 units. Two tables and two figures are presented showing the calculations and graphs. The summary is: 1) TR, TC, and profits are calculated up to an output of 12 units, with the maximum profit of Rs. 240 occurring at an output of 5 units. 2) MR and MC are also calculated up to an output of 12 units, with the profit maximizing output again being 5 units where MR equals MC.

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    Lab3

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    The document provides information to calculate total revenue (TR), total cost (TC), marginal revenue (MR), and marginal cost (MC) for a firm up to an output level of 12 units. Two tables and two figures are presented showing the calculations and graphs. The summary is: 1) TR, TC, and profits are calculated up to an output of 12 units, with the maximum profit of Rs. 240 occurring at an output of 5 units. 2) MR and MC are also calculated up to an output of 12 units, with the profit maximizing output again being 5 units where MR equals MC.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    14 views3 pages

    Lab 3

    Uploaded by

    Sofia Sharma
    The document provides information to calculate total revenue (TR), total cost (TC), marginal revenue (MR), and marginal cost (MC) for a firm up to an output level of 12 units. Two tables and two figures are presented showing the calculations and graphs. The summary is: 1) TR, TC, and profits are calculated up to an output of 12 units, with the maximum profit of Rs. 240 occurring at an output of 5 units. 2) MR and MC are also calculated up to an output of 12 units, with the profit maximizing output again being 5 units where MR equals MC.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 3

    Lab-3

    Let, cost function, C = 60 + 7Q2, and demand function, P = 120 – 5Q.


    i. Compute TR, TC and profits up to output level 12 units, graph them and determine
    profit maximizing output and maximum profit.
    ii. Compute MR and MC up to output level 12 units, graph them and determine profit
    maximizing output.

    Solution:
    a.
    Table 1: Calculation of TR, TC and Profit

    Q TR TC Profit(π)
    0 0 60 -60
    1 115 67 48
    2 220 88 132
    3 315 123 192
    4 400 172 228
    5 475 235 240
    6 540 312 228
    7 595 403 192
    8 640 508 132
    9 675 627 48
    10 700 760 -60
    11 715 907 -192
    12 720 1068 -348

    1200

    1000

    800

    600
    TR, TC and Profit

    400 TR

    200 TC
    Profit(π)
    0
    0 2 4 6 8 10 12 14
    -200

    -400

    -600
    Quantity

    Figure 1: Graph of TR, TC and Profit

    4
    Based on above Table and Figure,
     At output range of 0 to 9 units, TR > TC. Hence, firm obtains economic profit.
     At output range of 10 to 12 units, TC > TR. Hence, firm has to bear loss.
     At output level 5 units, the difference between TR and TC is the greatest. Hence, firm
    reaches at its equilibrium. Here, profit maximizing output = 5 units and maximum
    profit (π) = Rs. 240.

    b. Computation of MR and MC Functions and Profit maximizing output

    𝑑𝑇𝑅 𝑑(120𝑄−5𝑄2 )
    MR function = = = 120 − 10𝑄
    𝑑𝑄 𝑑𝑄

    𝑑𝑇𝐶 𝑑(60+7𝑄2 )
    MC function = = = 14𝑄
    𝑑𝑄 𝑑𝑄

    Table 2: Calculation of MR and MC

    Q MR MC
    0 120 0
    1 110 14
    2 100 28
    3 90 42
    4 80 56
    5 70 70
    6 60 84
    7 50 98
    8 40 112
    9 30 126
    10 20 140
    11 10 154
    12 0 168
    200

    150
    MR, MC

    100
    MR
    MC
    50

    0
    0 1 2 3 4 5 6 7 8 9 10 11 12 13
    Quantity

    Figure 2: Graph of MR and MC


    5
    Based on above Table and Figure,
     At any level of output less than 5 units, MR > MC. Hence, it is profitable to expand
    production.
     At any level of output more than 5 units, MR < MC. Hence, it is reasonable to
    contract output.
     At output level 5 units, MR = MC and also after this output rate of change in MC>
    rate of change in MR. Hence, firm reaches at its equilibrium. Hence, profit
    maximizing output = 5 units.

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