In the link below, what is the firm's profit-maximizing output? (Question 3)
The firm in this link needs to produce 500 kg of product to get its maximum profit. We can figure this in two ways.
First, we can use the total revenue - total cost method. In this method, we subtract total cost from total revenue. The profit-maximizing point is the amount of production at which the difference between total revenue and total costs is the greatest. In this table, the difference between total revenues ($240) and total costs ($145) at 500 kg of output is greater than at any other level of output.
The second method is the marginal revenue = marginal costs method. In this method, we must find the output level at which marginal revenue is closest to (but not lower than) marginal costs. At 500 kg of output, the marginal cost is $39 and the marginal revenue is $48. That is the closest the marginal cost comes to marginal revenue without marginal cost being greater than marginal revenue. Therefore, 500 kg is the profit-maximizing output.
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