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Chapter 25: Q. 6 (page 575)

Calculate total average costs for the bookstore in Problem 25-5. Illustrate the store's short-run equilibrium by calculating demand, marginal revenue, average total costs, and marginal costs. What is its total profit?

Short Answer

Expert verified

The company is earning a gross value of$7.95by trying to sell this same fifth book at$4.75per book.

Step by step solution

01

Introduction.

  • Marginal revenue is the increase in revenue that follows from selling one more unit of production (MR).
  • The standard cost is calculated by dividing the total amount of output by the number of production expenses.
  • The difference in total production costs generated by creating or producing one extra unit is known as the marginal cost of production.
02

Given Information.

The graph below was created using the table provided. The graph represents the short-run equilibrium.

The axis in the graph above represents output, while the x-axis represents quantity. The demand curve is denoted by D, and the marginal revenue curve is denoted by MR.

03

Explanation.

Both the supply curve and the MR curve have been slanted straight down.

The average total cost curve (ATC) is Ushaped.

MC represents the marginal cost curve. MR is cut from below by the MC curve.

By selling the fifth book at $4.75per book, the firm earns a total profit of $7.95.

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