Task I
EGT 1
Western Governors University
November 10, 2014

A. In this monopolistic competitive market scenario, profit maximization can be arrived by working the numbers in two separate approaches. The first is Total Revenue to Total Cost and profit maximization is derived by taking the total revenue and subtracting the total cost at each quantity level. Profit maximization is at the point where the gap is the largest between TR and TC. The second approach is Marginal Revenue to Marginal Cost. In this approach profit maximization is obtained by determining where MR is equal to MC.

B. In the table below, the Marginal Revenue was calculated by the change in total revenue of that resulted from selling one additional unit of output and is further defined as the change in Total Revenue divided by the change in Quantity. Marginal Revenue decreases in this table because the Marginal Costs continues to increase as shown in the MR chart below:

C. In the table below, the Marginal Cost increases and is a result of the additional cost of producing of one more unit of output. The calculation is derived by taking the change in Total Cost and dividing it by the change in quantity. Since the Total Costs increases between most units, the Marginal Costs also increase. See chart below:

D. Profit maximization for Company A in the table below is at the quantity of 8 units of 8 because of the higher revenue. Using the Total Revenue to Total Cost approach (hi-lighted in yellow) the largest gap was $540.00. Since this was equal to the quantity of 7 units of output I went with the output of 8 because the revenue was higher and the next level of profit declines. Also in using the Marginal Revenue to Marginal Cost approach, MR=MC at the output of 8 (hi-lighted in blue).

Quantity | TR | TC | Profit | MC | MR | 0 | $0.00 | $10.00 | ($10.00) | $10.00