microeconomics

When a competitive firm produces ONE extra unit of good, this involves additional cost for that unit of good, it is marginal cost. Conversely, that extra unit of good can be sold for additional revenue, it is margianl revenue. Therefore, the firm will continue to produce and sell the good if marginal revenue is larger than marginal cost, and if marginal cost is larger than marginal revenue by producing one extra unit of good, the firm should stop making that extra unit of good. Thus profit maximization condition is margianl revenue equals marginal cost.

(i)Q TR TFC TVC MC MR PROFIT=TR-(TFC+TVC)
1 700 500 250 250 700 -50
2 1400 500 450 200 700 450
3 2100 500 740 290 700 860
4 2800 500 1240 500 700 1060
5 3500 500 1940 700 700 1060
6 4200 500 2840 900 700 860
7 4900 500 3940 1100 700 460
8 5600 500 5240 1300 700 -140

(ii) Hence, the firm should produce at 5 units of good (equilibrium quantity) which MR=MC with profits being maximized at $1060.