Answer m i the phone company would save 18 in costs

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ANSWER M, I The phone company would save $18 in costs per customer by shutting down but would sacrifice  $20 in revenue. Hence, it is better off operating, earning $2 over costs related to local service. Local  phone service is actually contributing to profits, since overhead would be unchanged even if local  phone service were discontinued. 172. What is the value of marginal profit at the profit-maximizing output? ANSWER E, R Marginal profit is the difference between marginal revenue and marginal cost. When a firm  maximizes profit, the last unit of output adds equal amounts to revenue and cost. Therefore, at the  profit-maximizing output marginal profit is zero. 173. The total cost of producing one unit of output is $200; two units cost $300, three units $450, and  four units $800. Fixed cost is $50. Draw the associated total cost, average cost, and marginal cost  curves, placing total cost on one graph and marginal and average cost on a second graph. ANSWER M, I Total cost will rise slowly at first and then more quickly after Q = 2 (Figure 7-6). Average cost is U- shaped, with a flat portion in the U between Q = 2 and 3. Marginal cost is U- (or J) shaped, reaching  a minimum of $100 for the second unit. This point should be plotted at Q = 1.5. MC rises to $150,  plotted at Q = 2.5, where it intersects AC. MC rises quickly to $350 at Q = 3.5. FIGURE 7-6 TABLE 7-3
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256 Chapter 7/Output, Price, and Profit: The Importance of Marginal Analysis Quantity                    Price (dollars)                 Total Cost (dollars)     1 10 5 2 9 8 3 8 12 4 7 17 5 6 23 174. Explain how much the firm shown in Table 7-3 should produce, first using total profit and then  using marginal analysis. ANSWER M, I Total profit is total revenue minus total cost. Total revenue is P  ×  Q. Profit is at a maximum at Q =  3, where TR = 24, TC = 12, and profit is 12. Marginal revenue of the third unit is 6, while MC is 4.  Since MR exceeds MC, one might want to produce a fourth unit. Since MR of 4 is below MC of 5,  so the firm should not produce a fourth unit. 175. Complete the following table and determine the point of profit maximization. Quantity                 Total Revenue                Marginal Revenue                Total Cost                Marginal Cost                Profit     100 500 200 101 504.95 204.50 102 509.85 209.10 103 514.70 213.80 104 519.50 218.60 105 524.25 223.50 106 528.95 228.50 107 533.60 233.60 108 538.20 238.80 109 542.75 244.10 110 547.25 249.50 ANSWER D, I Quantity                 Total Revenue                Marginal Revenue                Total Cost                Marginal Cost                Profit     100 500 200 300 101 504.95 4.95 204.50 4.50 300.45 102 509.85 4.90 209.10 4.60 300.75 103 514.70 4.85 213.80 4.70 300.90
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