CA Foundation · Business Economics · Nature and Scope of Business Economics
A firm's total revenue function is TR = 60Q − Q² and its total cost function is TC = 100 + 20Q. Using the marginal approach, at which output is profit maximised?
Profit is maximised at Q = 20. Marginal revenue is 60 − 2Q and marginal cost is a constant 20, and profit is greatest where marginal revenue equals marginal cost, which gives 2Q = 40 and therefore an output of 20 units.
- AQ = 40
- BQ = 20Correct
- CQ = 30
- DQ = 10
Explanation
MR = 60 − 2Q and MC = 20. Setting MR = MC gives 60 − 2Q = 20, so Q = 20. Q = 40 comes from equating TR/Q (average revenue, 60 − Q) to MC, which is a common mistake. Q = 30 maximises revenue (MR = 0), not profit. Check: profit at Q=20 is 800 − 500 = 300.
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