Question

Granny’s Gifts produces handmade knits. They purchase yarn for $5/roll, and other materials for $2.50, turning the raw material into a blanket, and then sell to a wholesaler for $15. The wholesaler then sells each blanket for $22 to the retailer. Finally the retail cost at which the consumer purchases the item is $30.

What is the percentage margin for the entire chain?

Answer 1

To calculate total revenue, multiply the price of each unit by the number of units sold. Marginal revenue is the change in total revenue when one additional unit is sold. Calculate total cost by summing up fixed costs and variable costs. Marginal cost is the change in total cost when one additional unit is produced. The profit maximizing quantity occurs where marginal revenue equals marginal cost.

Step-by-step explanation:

To calculate total revenue, you multiply the price of each unit by the number of units sold. For example, when one unit is sold, the total revenue is $72. For marginal revenue, you calculate the change in total revenue when one additional unit is sold. For example, when two units are sold, the marginal revenue is $72. For total cost, you sum up the fixed costs and variable costs. For example, when three units are produced, the total cost is $100 + $114 = $214. For marginal cost, you calculate the change in total cost when one additional unit is produced. For example, when four units are produced, the marginal cost is $270 - $184 = $86. The profit maximizing quantity occurs where marginal revenue equals marginal cost. In this case, it is when four units are produced.