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Multiple Choice QuestionA firm's manager is given the following information: To sell 4 units of output, a price of $132 must be charged; this level of output reflects marginal revenue of $102 and marginal costs of $60. If the firm wants to sell 5 units of output, a price of $122 must be charged; this reflects marginal revenue of $82 and marginal costs of $70. To sell 6 units of output, a price of $112 must be charged; at this level of output, marginal revenue will be $62 and marginal costs $80. What should the manager do?Multiple choice question.Produce 4 units of output and charge $132.Produce an amount greater than 6 units.Produce 6 units of output and charge $112.Produce an amount less than 4 units.Produce 5 units of output and charge $122.

Question

Multiple Choice QuestionA firm's manager is given the following information: To sell 4 units of output, a price of 132mustbecharged;thislevelofoutputreflectsmarginalrevenueof132 must be charged; this level of output reflects marginal revenue of 102 and marginal costs of 60.Ifthefirmwantstosell5unitsofoutput,apriceof60. If the firm wants to sell 5 units of output, a price of 122 must be charged; this reflects marginal revenue of 82andmarginalcostsof82 and marginal costs of 70. To sell 6 units of output, a price of 112mustbecharged;atthislevelofoutput,marginalrevenuewillbe112 must be charged; at this level of output, marginal revenue will be 62 and marginal costs 80.Whatshouldthemanagerdo?Multiplechoicequestion.Produce4unitsofoutputandcharge80. What should the manager do?Multiple choice question.Produce 4 units of output and charge 132.Produce an amount greater than 6 units.Produce 6 units of output and charge 112.Produceanamountlessthan4units.Produce5unitsofoutputandcharge112.Produce an amount less than 4 units.Produce 5 units of output and charge 122.

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Solution

The manager should aim to produce at a level where marginal revenue equals marginal costs, as this is the point of profit maximization.

Let's analyze the options:

  1. At 4 units of output, marginal revenue is 102andmarginalcostsare102 and marginal costs are 60. The marginal revenue is greater than the marginal costs, so the firm could increase its profit by producing more.

  2. We don't have information about the marginal revenue and costs for an amount greater than 6 units, so we can't make a decision based on this option.

  3. At 6 units of output, marginal revenue is 62andmarginalcostsare62 and marginal costs are 80. The marginal costs are greater than the marginal revenue, so the firm would not maximize its profit at this level of output.

  4. We don't have information about the marginal revenue and costs for an amount less than 4 units, so we can't make a decision based on this option.

  5. At 5 units of output, marginal revenue is 82andmarginalcostsare82 and marginal costs are 70. The marginal revenue is greater than the marginal costs, but not as much as at 4 units of output.

Based on this analysis, the best option for the manager would be to "Produce 5 units of output and charge $122". This is the point where the difference between marginal revenue and marginal costs is the greatest, indicating the highest level of profit.

This problem has been solved

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