Firm Profit Calculation

1. MP = Total product of 3 pounds of plastic – Total product of 2 pounds of plastic

= 40 assemblies – 30 assemblies

= 10 assemblies

1. Total Revenue (TR₂) = Total product of 2 pounds of plastic * Price = 30 assemblies * $11/assembly = $330

The total revenue when 3 pounds of plastic is used –

Total Revenue (TR₃) = Price×Total product of 3 pounds of plastic= $9/assembly×40 assemblies = $360

Calculating marginal revenue product of 3rd pound of plastic –

MRP = (TR₃ – TR₂ )/ Q₃ – Q₂

MRP = ($360 – $330)/3 -2

MRP = $30

1. Marginal Cost

MC = TC_n – TC_n-1/Q_n – Q_n-1

Marginal Revenue is calculated as follows –

MR = TR_n – TR_n-1 / Q_n – Q_n-1

In the following table above mentioned formulas are used to calculate the marginal cost and marginal revenue columns respectively.

Required Table is as follows –

Pounds of Plastic (Q)	Total Cost (TC) of plastic ($) (Price = 135/pound)	Total Product	Price ($)	Total Revenue (TP*Price)	Marginal Cost	Marginal Revenue
0	0	0	–	0	0	0
1	135	15	13	195	135	195
2	270	30	11	330	135	135
3	405	40	9	360	135	30
4	540	55	7	385	135	25
5	675	58	5	290	135	-95

A firm maximizes its profit when it produce that output where its marginal revenue is equal to its marginal cost.

MR equals MC when 30 assemblies (Total Product column) are produced.

So, to maximize profit, producer should produce 30 assemblies.

1. Marginal Cost is calculated as follows –

MC = TC_n – TC_n-1/Q_n – Q_n-1

Marginal Revnue is calculated as follows –

MR = TR_n – TR_n-1 / Q_n – Q_n-1

In the following table above mentioned formulas are used to calculate the marginal cost and marginal revenue columns respectively.

Required Table is as follows –

Pounds of Plastic (Q)	Total Cost (TC) of plastic ($) (Price = 135/pound)	Total Product	Price ($)	Total Revenue (TP*Price)	Marginal Cost	Marginal Revenue
0	0	0	–	0	0	0
1	135	15	13	195	135	195
2	270	30	11	330	135	135
3	405	40	9	360	135	30
4	540	55	7	385	135	25
5	675	58	5	290	135	-95

A firm maximizes its profit when it produced that output where its marginal revenue is equal to its marginal cost.

MR equals MC when 30 assemblies (Total Product column) are produced.

So, producer should produce 30 assemblies.

For producing 30 assemblies 2 pound of plastic is required.

So, to maximize profit, producer should buy and use 2 pounds of plastic.