When production is 3000, marginal revenue is 7 dollars per unit and marginal cost is 5 dollars per unit. Do you expect maximum profit to occur at a production level above or below 3000? (Enter above or below.)
If production is increased by 30 units, what would you estimate the change in profit would be?
≈ dollars
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To determine whether maximum profit is expected to occur at a production level above or below 3000, we need to compare the marginal revenue (MR) and marginal cost (MC).
If MR is greater than MC, then increasing production will add more to revenue than it will to costs, indicating that profit can be maximized by producing more. If MC is greater than MR, then the additional costs will outweigh the additional revenue, indicating that profit is maximized at a production level below the current level.
In this case, since the marginal revenue is $7 per unit and the marginal cost is $5 per unit, we can see that MR is greater than MC. Therefore, we expect maximum profit to occur at a production level above 3000.
To estimate the change in profit if production is increased by 30 units, we need to calculate the additional revenue and the additional costs.
Additional revenue = MR * additional units
Additional revenue = $7 * 30 units
Additional revenue = $210
Additional costs = MC * additional units
Additional costs = $5 * 30 units
Additional costs = $150
Change in profit = Additional revenue - Additional costs
Change in profit = $210 - $150
Change in profit = $60
Therefore, if production is increased by 30 units, the estimated change in profit would be approximately $60.