Principles of Microeconomics / Unit 7 MIC 0606 worked example, 60 to 90 seconds
Profit by Totals from a Table
The idea
Given a total cost table and a price, add a revenue column, price times quantity, and a profit column, revenue minus cost. The profit-maximizing quantity is the row with the largest profit, or the smallest loss if every row is negative. Check the neighbors: profit should rise up to that row and fall after it.
In practice
Worked example: the strawberry farm at thirty dollars a flat. Revenue runs zero, thirty, sixty, ninety, one twenty, one fifty, one eighty, two ten, two forty for zero to eight flats. Against costs of sixty, eighty, ninety-two, one oh two, one fourteen, one thirty, one fifty, one seventy-four and two oh two, profit runs minus sixty, minus fifty, minus thirty-two, minus twelve, six, twenty, thirty, thirty-six, thirty-eight. The best quantity is eight flats, with a profit of thirty-eight dollars.
Where people slip
Read the profit column, never the revenue column; revenue is largest at the largest output, which is not the answer. And a loss in every row does not mean produce nothing; it means find the smallest loss, subject to a test in video six fourteen.
Your place on the trail
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