# How Do Marginal Revenue and Cost Determine Profit in Microeconomics?

• GZA09
In summary, the graph shows the short-run cost situation of a competitive, profit-maximizing firm. The equilibrium output is 18 units and at a price of $150, the marginal revenue and marginal cost are both$150. The average cost at an output of 18 units is $200. The profit per unit at an output of 18 units and a price of$230 is $30. The total revenue at an output of 18 units and a price of$230 is $4,140. The total cost at an output of 18 units is$3,600.
GZA09
Micro econ MR MC AC etc help!

## Homework Statement

The adjacent graph (I've attached it) shows the short-run cost situation of a competitive, profit-maximizing firm. Assume that MC is plotted between units. Determine for each of the following prices: i) $150 ii)$200 iii) $230 iv)$350
a) equilibrium output
b) marginal revenue
c) marginal cost
d) average cost
e) profit per unit
f) total revenue
g) total cost

## Homework Equations

These were what i could find in my notes that are related but they don't seem to help :/

Total cost = variable cost + fixed cost
Average cost = total cost / q

## The Attempt at a Solution

Well by looking at the graph i was able to find out the equillibrium outputs, and using a rule that states that Price = Marignal cost and price = marginal revenue, i found those two.

Price:---------150-------200------230------350
Equill Output:--15--------17-------18-------21
Marginal R:----150-------200------230------350
Marignal C:----150-------200------230------350
Average C:
Profit/unit:
Total R:
Total cost:
Total profit:Thank you :/ i have an exam in 2 days and I am totally stumped on this :(

#### Attachments

• photo.JPG
44.9 KB · Views: 442

Hello there,

I can help you with this problem. Let's start by defining some of the terms you mentioned.

MR - This stands for marginal revenue, which is the change in total revenue when one additional unit is sold.

MC - This stands for marginal cost, which is the change in total cost when one additional unit is produced.

AC - This stands for average cost, which is the total cost divided by the quantity produced.

Now, let's look at the graph. The horizontal axis represents the quantity produced and the vertical axis represents the cost. The curves on the graph represent the marginal cost, average cost, and marginal revenue.

a) Equilibrium output is the quantity at which marginal cost intersects with marginal revenue. In this case, the equilibrium output would be 18 units.

b) At a price of $150, the marginal revenue would also be$150.

c) At a price of $150, the marginal cost would also be$150.

d) To find the average cost at a specific quantity, you can divide the total cost by the quantity. For example, at an output of 18 units, the average cost would be $200. e) Profit per unit is the difference between the price and the average cost. At an output of 18 units and a price of$230, the profit per unit would be $30. f) Total revenue is the price multiplied by the quantity produced. At an output of 18 units and a price of$230, the total revenue would be $4,140. g) Total cost is the sum of the fixed cost and the variable cost. At an output of 18 units, the total cost would be$3,600.

I hope this helps. Let me know if you have any other questions. Good luck on your exam!

## 1. What is Microeconomics?

Microeconomics is a branch of economics that focuses on the study of individual decision-making and behavior of firms and households. It examines how individuals and firms make choices about the allocation of scarce resources and how these choices affect the market for goods and services.

## 2. What is MR, MC, and AC in microeconomics?

MR stands for Marginal Revenue, which is the change in total revenue when one additional unit of a product is sold. MC stands for Marginal Cost, which is the change in total cost when one additional unit of a product is produced. AC stands for Average Cost, which is the average cost per unit of output.

## 3. How do MR, MC, and AC help in decision-making?

In microeconomics, MR, MC, and AC are important concepts used to analyze the behavior of firms. MR helps firms determine the optimal level of output to maximize profits, MC helps firms determine the most cost-effective level of production, and AC helps firms determine the average cost of producing each unit of output.

## 4. What is the relationship between MR, MC, and AC?

MR and MC are directly related, meaning that as MR increases, MC also increases. This relationship is important for firms to determine the optimal level of output. AC, on the other hand, is indirectly related to MR and MC. As MR and MC increase, AC decreases. This relationship is important for firms to determine the average cost of production.

## 5. How do changes in MR, MC, and AC affect a firm's profits?

Changes in MR, MC, and AC can have a significant impact on a firm's profits. If MR is greater than MC, the firm is making a profit, and producing more units can increase profits. If MC is greater than MR, the firm is experiencing losses, and reducing the level of production can help minimize losses. Additionally, a decrease in AC can lead to higher profits for the firm.

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