Given the information stated above, the firms maximum total profit will be $90. (Option A) See the explanation below.
<h3>What is Maximum Total Profit?</h3>
Maximum total profit is the highest profit
<h3>What is the calculation supporting the above answer?</h3>
It is to be noted that the attached excel spread sheet was computed using the following formulas:
MC(n) = TC(n) - TC(n-1)
MC(n) = marginal cost of nth unit
TC(n) = Total cost of n units of output
MC(1) = 40-25=15 and so on
Recall that
Total Revenue (TR) = Price * Quantity
that is:
TR = P * Q
Marginal Revenue of the nth unit of output =
TR of the n unit of output - TR of the n-1 units of output.
MR(n)=TR(n)-TR(n-1)
MR(1)=55-0=55 and so on
Recall that Profit = TR - TC
Thus,
Profit (0) = 0 - 25
= -25 and so on
By observation on the sheet, the maximum profit (that is highest profit attainable) is given as $90.
This corresponds with
- the Quantity of 4 Unit
- The Marginal Revenue of 25; and
- Marginal Cost of 15.
Hence, option A is correct.
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