Question

Adams, Inc. currently sells one of its products for $140 per unit. Variable costs are $75 per unit and total fixed costs are $5,000. The company has been asked to provide 500 units to a charity at a reduced price. The sale would not disrupt regular sales. If Adam's desired profit for this sale is $20 per unit, the quoted price per unit will be $

Answer 1

To determine the profit-maximizing quantity, we calculate total revenue, marginal revenue, total cost, and marginal cost for each level of output. The profit-maximizing quantity is the level where marginal revenue equals marginal cost.

Step-by-step explanation:

To calculate the total revenue and marginal revenue for each output level, we need to multiply the selling price per unit by the quantity sold. The total cost can be calculated by adding the fixed costs and the variable costs for each unit. The marginal cost can be obtained by finding the change in total cost for each additional unit produced. The profit-maximizing quantity is the level of output where marginal revenue equals marginal cost.

Table:

Output Level Total Revenue Variable Cost Fixed Cost Total Cost Profit Marginal Revenue Marginal Cost

1 $20 $20 $20 $40 $-20 $20 $20

2 $40 $25 $20 $45 $-5 $20 $5

3 $60 $35 $20 $55 $5 $20 $10

4 $80 $50 $20 $70 $10 $20 $15

5 $100 $80 $20 $100 $0 $20 $30