Exercises: Costs, Revenue and the Profit-Maximising Output

A bakery in Galway sells loaves of bread at a constant price of €4 per loaf. In one day it sells 150 loaves.

1. a) Calculate the bakery's total revenue.

1. b) Calculate the average revenue per loaf.

1. c) Calculate the marginal revenue of selling the 151st loaf.

A small furniture workshop in Kilkenny has fixed costs of €2,000 per month and variable costs of €30 per chair. In a month it produces 100 chairs.

1. a) Calculate total cost.

1. b) Calculate average total cost per chair.

1. c) Calculate average fixed cost and average variable cost per chair.

Explain the difference between the short run and the long run in economics. Give one example of a fixed factor and one example of a variable factor for a small restaurant in Cork.

A firm in Limerick has the following data:

The product sells at a constant price of €90 per unit.

1. a) Calculate marginal cost for each unit of output.

1. b) Calculate total revenue and profit at each output level.

1. c) State the profit-maximising output and verify your answer using the rule MC = MR.

A craft brewery in Dingle has total fixed costs of €12,000 per month. Its variable cost is €1.50 per bottle. Its price is €3.50 per bottle.

1. a) Calculate the break-even output (the output at which total revenue equals total cost).

1. b) Calculate the profit if it sells 14,000 bottles.

1. c) The price of bottles and ingredients rises so that variable cost becomes €2.00 per bottle. Calculate the new break-even output.

A firm in Athlone faces the demand schedule below (so it must lower the price to sell more).

Its marginal cost is constant at €8 per unit.

1. a) Calculate total revenue and marginal revenue at each quantity.

1. b) Find the profit-maximising quantity using MC = MR.

1. c) Explain why the firm would not produce the 5th unit.

A firm in Waterford has the cost function $TC = 200 + 10Q + Q^2$ and sells at a constant price of €50 per unit.

1. a) Derive expressions for marginal cost and marginal revenue.

1. b) Find the profit-maximising output using MC = MR and calculate the maximum profit.

1. c) Explain why MC = MR identifies a maximum rather than a minimum of profit, referring to the behaviour of MC.

1. d) The price falls to €30. Recalculate the profit-maximising output and the profit, and comment on whether the firm should continue to produce in the short run if fixed costs are unavoidable.

A firm has the following short-run data:

1. a) Explain the relationship between MC and AC shown by the data, and identify the output where AC is at its minimum.

1. b) Calculate total cost at 30 and 40 units and verify the marginal cost of the 40th unit approximately.

1. c) If the price is €26 and the firm is a price taker, determine the profit-maximising output from the table and calculate profit at that output.

1. d) Explain why a firm may produce at a level other than the one where AC is lowest.

An Irish software firm in Dublin has the following demand: $P = 100 - 2Q$ (€ per licence, Q in hundreds of licences) and total cost $TC = 300 + 20Q$.

1. a) Derive total revenue and marginal revenue.

1. b) Find the profit-maximising output, the price and the profit.

1. c) A shareholder says the firm should instead maximise sales revenue. Find the output that maximises total revenue and the profit at that output, and compare it with part b).

1. d) Discuss two objectives other than profit maximisation that an Irish firm might pursue, and say when they may be sensible.