a. Sometimes, our discussion of marginal cost and marginal revenue unintention­ally hides the real issue: the entrepreneur’s quest to maximize total profits. Here is information on a firm:

Demand: P = 50 − Q. Fixed cost = 100, marginal cost = 10.

Using this information, calculate total profit for each of the values in the follow­ing table, and then plot total profit in the figure below. Clearly label the amount of maximum profit and the optimum quantity that produces this level of profit.

b. If the fixed cost increased from 100 to 200, would that change the shape of this curve at all? Also, would it shift the location of the curve to the left or right? Up or down? How does this explain why you can ignore fixed costs most of the time when thinking about a monopoly’s decision-making process?

Transcribed Image Text:

Quantity 18 19 20 21 22 23 Profit Total Revenue Quantity Total Cost Total Profit