SELECTED ANSWERS to Chapter 11:

5. Some use more of one input, some use more of another -- the cost depends on the prices of inputs.

6. Suppose the numbers in Table 1 change so that marginal cost is 4 for every quantity (every number in the MC column is 4) and total cost is 4 times the quantity. Then the profit maximizing quantity would still be 7 because that is where the marginal cost of 4 equals the marginal revenue. In this case, the profit would be $28 (total revenue of $70 minus total cost of $28.)

7. Repeating Question 6, assuming a marginal cost of 6 for every quantity, we find that the profit maximizing quantity is 6 because that is where the marginal cost of 6 equals the marginal revenue. The profit is $42 (total revenue of $66 minus total cost of $24.)

8. When marginal cost exceeds average cost, average cost rises as output rises. When marginal cost is less than average cost, average cost falls as output rises. The logic is the same as with grade point averages -- if your grade in an additional course (which is a MARGINAL grade) is above your grade point AVERAGE, then it pulls your average up; if t's below your average, it pulls your average down.

15. It would produce 8 units, and earn a profit of $4+$4+$4+$4+$3+$2+$1+$0 = $22.

19. If the firm reduces production by one unit, its marginal cost measures the fall in its total costs, and its marginal revenue measures the fall in its total revenue. If marginal cost exceeds marginal revenue, then its costs fall by more than its revenues fall if it reduces production, so its profit increases.

20. (a) The price depends on how much it sells!
(b) If the price is $8 for every quantity, then marginal revenue is $8 for every quantity. So it maximizes profit by producing 11 units (where MC is also $8). It earns a profit of TR-TC = $88 - $81 = $7.

21. After you fill in part of the table, you will see that price equals marginal revenue, and MC=MR (= price) at the quantity 9, which maximizes profit. (MR also equals MC at the quantity 3, but that is a minimum profit point, like point B in Figure 1 on page 262. By producing 9, the firm is at a point like point A in that figure.)

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