When production is 1700, marginal revenue is 8 dollars per unit and marginal cost is 6.75 dollars per unit. Do you expect maximum profit to occur at a production level above or below 1700?
If production is increased by 50 units, what would you estimate the change in profit would be?
To determine whether the maximum profit occurs above or below a production level of 1700, we need to compare the marginal revenue (MR) and marginal cost (MC) at that level.
If the MR is greater than MC at a production level of 1700, then the profit would be expected to increase by producing more units. On the other hand, if the MC is greater than MR, then reducing production below 1700 would be the best course of action to maximize profit.
In this case, the given information states that the MR is $8 per unit and the MC is $6.75 per unit. Since the MR is greater than the MC, we can infer that increasing production from 1700 units would likely lead to higher profits.
Now, let's estimate the change in profit when production is increased by 50 units. To do this, we need to calculate the additional revenue and additional cost associated with producing those extra 50 units.
Additional Revenue = MR * Additional Units Produced
Additional Revenue = $8 * 50 = $400
Additional Cost = MC * Additional Units Produced
Additional Cost = $6.75 * 50 = $337.50
Change in Profit = Additional Revenue - Additional Cost
Change in Profit = $400 - $337.50 = $62.50
Therefore, we can estimate that the change in profit resulting from an increase of 50 units in production would be $62.50.