Question 1

Inputs to an industrial process cost $10 per unit of input. Given a certain level of inputs (see table), the following total output quantities can be produced. Output is sold for $3 each.

Units	Total Product
1	10
2	19
3	27
4	33
5	35

1. What is the optimal quantity of input 1 to use?(4 marks)

Units	Total Product	Total Cost, TC (10$ per unit)	Marginal Cost, MC	Total Revenue, TR Output $3 each	Marginal Revenue, MR	Total Profit, (TR-TC)
1	10	10	10	30	30	20
2	19	20	10	57	27	37
3	27	30	10	81	24	51
4	33	40	10	99	18	59
5	35	50	10	105	6	55

Optimal quantity of input is when MC = MR or when MR >= MC because in some cases MR cannot equal MC exactly, so you try to get as close as possible.

Hence, the optimal quantity of input is 4 units because that's where most profit is made. MR, which is 18, is closest to MC, which is 10, at 4 units compared to the rest without exceeding past MC. It exceeds past MC at 5 units.

1. What is the maximum profit the firm can earn using the optimal input level?(2 marks)

The maximum profit the firm can earn at 4 units is $59, where TR-TC is greatest.

did i answer this correctly?