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Problem 2

The document discusses the marginal cost and revenue of a product, deriving the marginal cost as C′(x) = 15 - 0.2x and the marginal revenue as R′(x) = 25. It finds that setting marginal cost equal to marginal revenue leads to an infeasible production level of x = -50, indicating no feasible production level exists where these two are equal. This suggests a misalignment between the firm's cost structure and pricing strategy.

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27 views3 pages

Problem 2

The document discusses the marginal cost and revenue of a product, deriving the marginal cost as C′(x) = 15 - 0.2x and the marginal revenue as R′(x) = 25. It finds that setting marginal cost equal to marginal revenue leads to an infeasible production level of x = -50, indicating no feasible production level exists where these two are equal. This suggests a misalignment between the firm's cost structure and pricing strategy.

Uploaded by

caonguyenanhtuan2662006.work
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Marginal Cost and Revenue

The cost C(x) (in dollars) of producing x units of a product is given by C(x)=
500 + 15x - 0.1 x 2. The revenue R(x) (in dollars) from selling x units is given by
R(x) = 25x.
1. Find the marginal cost C′(x) and marginal revenue R′(x).
2. Determine the production level where marginal cost equals
marginal revenue.
3. Interpret this production level in terms of profit maximization.

Given:
Cost Function: C(x) = 500 + 15x − 0.1 x 2
Revenue Function: R(x)=25x
Where:
x represents the quantity of units produced and sold by a firm.
C(x) : the total cost of producing xxx units.
R(x) : the total revenue from selling xxx units.

Task 1 : Find the marginal cost C′(x) and marginal revenue R′(x)

1. Marginal Cost C′(x) : The marginal cost is the derivative of the cost
function C(x) with respect to x.
Given:
C(x) = 500 + 15 x − 0.1 x 2

Differentiate C(x) with respect to x:

d
C’(x) = (500 + 15x - 0.1 x 2)
dx

So, the marginal cost is:

C’(x) = 15 - 0.2x
2. Marginal Revenue R′ : The marginal revenue is the derivative of the
revenue function R(x) with respect to x.
Given:
R(x) = 25x
Differentiate R(x) with respect to x:

d
R’(x) = ( 25x ) = 25
dx

The marginal revenue is constant, R′(x)=25, because the price per unit
is fixed at $25.

Task 2: Find the Production Level where Marginal Cost Equals Marginal
Revenue:

To find the production level where marginal cost equals marginal revenue, we
set C′(x)=R′(x).

From the previous steps:

C′(x) = 15−0.2x
R′(x) = 25

Set these two expressions equal to each other:

15 − 0.2x = 25
Now, solve for x:
-0.2x = 25 - 15
(=) -0.2x = 10
10
(=) x =
−0.2
(=) x = -50
Task 3: Interpretation of the Result:

● The solution x=−50x = -50x=−50 is not feasible because


production levels cannot be negative.
● Interpretation: This result suggests that there is no production level
where marginal cost equals marginal revenue under the current cost
and revenue functions. This could indicate that the firm's cost structure
(with the quadratic term -0.1 x 2) causes costs to increase too quickly, or
the pricing structure (fixed price of $25 per unit) doesn't align well with
the cost dynamics at higher production levels.

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