Final answer:
To determine the profit-maximizing quantity for Doggies Paradise Inc., calculate total revenue, marginal revenue, total cost, and marginal cost for each output level. The profit-maximizing quantity is where marginal cost equals marginal revenue, identified by analyzing the revenue and cost curves.
Step-by-step explanation:
Profit Maximization for Doggies Paradise Inc.
The profit maximization question for Doggies Paradise Inc., which operates in a perfectly competitive market, involves determining the output level at which the marginal cost (MC) is equal to the marginal revenue (MR). As the firm sells dog coats for $72 each with a fixed cost of production of $100, and varying total variable costs for different output levels, we must calculate the total revenue (TR), marginal revenue (MR), total cost (TC), and marginal cost (MC) for each respective unit.
Total Revenue is the total sales of the company, calculated as quantity sold multiplied by the price. Marginal Revenue, in a perfectly competitive market, is the constant price at which each additional unit is sold. Total Cost is the sum of fixed and variable costs at each level of production. Marginal Cost is the increase in total cost when production is increased by one unit.
For the output levels given, we calculate the figures in a table and analyze them to determine the profit-maximizing quantity. This occurs where MR equals MC, beyond which point producing additional units would lead to a decrease in profit. The total revenue and total cost curves intersect at the breakeven point, and profit is maximized where the difference between total revenue and total cost is the greatest, before the cost curves start to rise more steeply than the revenue curve.