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Task In this given situation a company exists in a monopolistic competition where a company sells widgets. As more widget are sold the company must offer discounts on the product in order to sell more units. The table below includes the Total Revenue and Total Cost information needed to perform marginal revenue and marginal cost calculations that will be explained below.
Quantity0123456789101112131415Quantity0123456789101112131415
TR\$0.00\$150.00\$290.00\$420.00\$540.00\$650.00\$750.00\$840.00\$920.00\$990.00\$1,050.00\$1,100.00\$1,140.00\$1,170.00\$1,190.00\$1,200.00TR\$0.00\$150.00\$290.00\$420.00\$540.00\$650.00\$750.00\$840.00\$920.00\$990.00\$1,050.00\$1,100.00\$1,140.00\$1,170.00\$1,190.00\$1,200.00
TC\$10.00\$30.00\$50.00\$80.00\$120.00\$170.00\$230.00\$300.00\$380.00\$470.00\$570.00\$680.00\$800.00\$930.00\$1,070.00\$1,220.00 Profit maximization in terms of total revenue to total cost can be approached in two different ways. The first is to take total revenue and total cost for a time period and subtract total cost from total revenue for each unit produced to determine how many units produced would yield the highest profit. To do this in this scenario I have illustrated it in the chart below.
TCTR - TC\$10.00\$-10.00\$30.00\$120.00\$50.00\$140.00\$80.00\$360.00\$120.00\$420.00\$170.00\$480.00\$230.00\$520.00\$300.00\$540.00\$380.00\$540.00\$470.00\$520.00\$570.00\$480.00\$680.00\$420.00\$800.00\$340.00\$930.00\$240.00\$1,070.00\$120.00\$1,220.00\$-20.00 As you can see in the highlighted section above at 8 units produced Company A achieves profit maximization because at any point after that additional units produced causes a decline in profit. The second approach to profit maximization through total revenue and total cost is graphically. A graph is provided below to illustrate.

As you can see in the above graph the TR – TC line hits its highest point at 8 units produced. This is the point where profits are maximized. To establish profit maximization using marginal cost and marginal revenue set marginal cost equal

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