Assuming that 1 2 > 0, find the profit-maximizing shipment of cocoa. What happens if 1 2 0?
The correct answer and explanation is:
Your question seems to be incomplete or has formatting issues—specifically with the expression “1 2 > 0” and “1 2 0”. Based on the context and typical economic models, you’re likely referring to marginal revenue (MR) and marginal cost (MC) decisions, particularly in determining the profit-maximizing quantity (e.g., shipment of cocoa). I’ll interpret your question under this assumption.
Correct Answer:
If MR – MC > 0, then profit increases by increasing shipment—ship more cocoa.
If MR – MC = 0, profit is maximized—this is the optimal shipment level.
If MR – MC < 0, profit decreases with more shipments—ship less cocoa.
Explanation (300 words):
In microeconomics, firms maximize profit by producing (or shipping) at the level where marginal revenue (MR) equals marginal cost (MC). Marginal revenue is the additional income from selling one more unit of a good, while marginal cost is the additional cost incurred from producing that extra unit.
Assuming that “1 2 > 0” was meant to indicate MR – MC > 0, this means that for each additional unit of cocoa shipped, the firm earns more revenue than it costs to ship it. As a result, increasing shipments will increase profit. Therefore, the firm should continue increasing shipments until MR – MC = 0.
Once MR – MC = 0, the firm reaches its profit-maximizing shipment level. Beyond this point, if MR – MC becomes negative (i.e., MR – MC < 0), each additional unit shipped would cost more than it earns in revenue, thereby reducing profit.
In summary:
- If MR > MC, ship more.
- If MR = MC, profit is maximized—hold shipment level steady.
- If MR < MC, ship less.
This decision-making rule is central to many economic optimization problems, not just for cocoa but across various industries and markets. It ensures that resources (like cocoa shipments) are allocated efficiently to maximize the firm’s net earnings