Question

The AAA Aquarium Co. sells aquariums for \(20 each. Fixed costs of production are \)20. The total variable costs are \(20 for one aquarium, \)25 for two units, \(35 for the three units, \)50 for four units, and $80 for five units. In the form of a table, calculate total revenue, marginal revenue, total cost, and marginal cost for each output level (one to five units). What is the profit-maximizing quantity of output? On one diagram, sketch the total revenue and total cost curves. On another diagram, sketch the marginal revenue and marginal cost curves.

Short answer

The profit-maximizing point is where $MC=MR$. From the table, it should produce $4$units.

Step-by-step solution

Defination

Marginal Revenue and Marginal Cost: Marginal revenue is the amount of money a company makes from selling an extra unit of a product or service. The marginal cost, on the other hand, is the increase in total cost when a firm increases total production by one unit.

Calculation

By comparing TC to TR it can be observed that at low quantities total cost is higher, however, it dips down for quantities 3 and 4, which turn a profit, and quantity 5 jumps in marginal cost making it unprofitable.

Calculation

The profit-maximizing point is where $MC=MR$. From the table, it should produce $4$units.