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Question
Microeconomics
Posted 8 months ago

Blammo produces and sells greeting cards. The marginal cost of producing different quantities of greeting cards, as well as the marginal revenue earned, is given in the table below.
\begin{tabular}{lll}
QQ & Marginal cost (MC)(M C) & Marginal Revenue (MR)(M R) \\
\hline 1000 & $1.00\$ 1.00 & $3.00\$ 3.00 \\
2000 & $1.50\$ 1.50 & $3.00\$ 3.00 \\
3000 & $2.00\$ 2.00 & $3.00\$ 3.00 \\
4000 & $2.50\$ 2.50 & $3.00\$ 3.00 \\
5000 & $3.00\$ 3.00 & $3.00\$ 3.00 \\
6000 & $3.50\$ 3.50 & $3.00\$ 3.00 \\
7000 & $4.00\$ 4.00 & $3.00\$ 3.00 \\
8000 & $4.50\$ 4.50 & $3.00\$ 3.00 \\
9000 & $5.00\$ 5.00 & $3.00\$ 3.00
\end{tabular}

How many greeting cards should this firm produce to make the highest possible profit?

Choose 1 answer:
(A) 2000
(B) 9000
(C) 5000
(D) 7000
(E) 3000
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Answer from Sia
Posted 8 months ago
Solution
a
Profit Maximization: To maximize profit, a firm in a perfectly competitive market should produce the quantity where marginal cost (MC) equals marginal revenue (MR)
b
Given Data: The table provides the marginal cost and marginal revenue for different quantities of greeting cards. The marginal revenue (MR) is constant at $3.00 for all quantities
c
Comparison: Compare the marginal cost (MC) with the marginal revenue (MR) for each quantity: - At 1000 cards, MC = 1.00<MR=1.00 < MR = 3.00 - At 2000 cards, MC = 1.50<MR=1.50 < MR = 3.00 - At 3000 cards, MC = 2.00<MR=2.00 < MR = 3.00 - At 4000 cards, MC = 2.50<MR=2.50 < MR = 3.00 - At 5000 cards, MC = 3.00=MR=3.00 = MR = 3.00 - At 6000 cards, MC = 3.50>MR=3.50 > MR = 3.00 - At 7000 cards, MC = 4.00>MR=4.00 > MR = 3.00 - At 8000 cards, MC = 4.50>MR=4.50 > MR = 3.00 - At 9000 cards, MC = 5.00>MR=5.00 > MR = 3.00
d
Conclusion: The firm should produce the quantity where MC equals MR, which is at 5000 greeting cards
Answer
5000
Key Concept
Profit maximization occurs where marginal cost equals marginal revenue.
Explanation
The firm should produce 5000 greeting cards because at this quantity, the marginal cost (3.00)equalsthemarginalrevenue(3.00) equals the marginal revenue (3.00), ensuring maximum profit.

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