Final answer:
To find the profit maximizing quantity for Doggies Paradise Inc., we calculate total revenue, marginal revenue, total cost, and marginal cost for each output level, and identify where marginal revenue equals marginal cost.
Step-by-step explanation:
The question asks us to calculate the total revenue, marginal revenue, total cost, and marginal cost for a perfectly competitive firm, Doggies Paradise Inc., selling winter coats for dogs at different levels of output. In addition, we are to sketch curves for total revenue and total cost, and marginal revenue and marginal cost to determine the profit maximizing quantity. For a perfectly competitive firm, the price per unit is equivalent to the marginal revenue. Since Doggies Paradise Inc. sells dog coats for $72 each, this is also the marginal revenue for each additional unit sold. Marginal cost is calculated at each additional unit by the change in total variable cost.
Here's an example table (the actual calculations are not included, just the setup):
- Output (Units)
- Total Revenue ($)
- Marginal Revenue ($)
- Total Variable Cost ($)
- Total Cost ($)
- Marginal Cost ($)
Total Revenue is calculated by multiplying the number of units sold by the selling price (Output * $72). The Total Cost is the sum of Fixed Costs ($100) and Total Variable Cost for the respective output level. Marginal Cost is determined for each additional unit by the increase in Total Variable Cost as output increases.
To find the profit maximizing quantity, we look for the output level where Marginal Revenue equals Marginal Cost, as producing beyond this point would not increase profits. Graphically, this is the intersection point between the Marginal Revenue and Marginal Cost curves.