Profit maximization via total revenue minus total cost

Steps:

• Compute total revenue (TR) for each output level: TR = output × average revenue (AR).
• Compute total cost (TC) for each output level: TC = output × average cost (AC).
• Calculate profit for each: profit = TR - TC.
• Identify the output level with the highest profit value.

Why D is correct:

• At 20 units, TR - TC yields the maximum profit, as per the profit formula π = Q(AR - AC).

Why the others are wrong:

• A: At 5 units, profit is lower than at 20 due to smaller Q(AR - AC).
• B: At 10 units, profit is lower than at 20 due to smaller Q(AR - AC).
• C: At 15 units, profit is lower than at 20 due to smaller Q(AR - AC).

Final answer: D