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Chapter 24: Q. 15 (page 554)

Take a look at Figure 24-5. Suppose that Q1 is equal to 25 units of output per time period. If the vertical distance to point A is \( 10 per unit and the vertical distance to point B is 4\) per unit, then how much does producing the 25th unit of output affect the firm's economic profits?

Short Answer

Expert verified

The company's current profits are reduced by $6when the 25thunit of outcome is produced.

Step by step solution

01

Introduction

  • Profit maximization is the short- or long-term process through which a company determines the value, information, and output levels that result in the greatest profit.
  • Neoclassical economics, which is now the most widely used approach to microeconomics, models the company as maximizing profit.
02

Explanation

We know from the graph that

At point A,marginal revenuelocalid="1653639962614" =$10

At point B,the marginal costlocalid="1653640219657" =$4

Marginal profit = marginal revenue - marginal cost

=$10-$4=$6

Hence producing the localid="1653639920047" 25thunit of output affects the firm's economic profits by $6.

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