Final answer:
To calculate the profit maximizing quantity for Doggies Paradise Inc., we need to compute the total revenue, marginal revenue, total cost, and marginal cost at each output level. The profit maximizing point is where marginal revenue equals marginal cost.
Step-by-step explanation:
The question asks us to calculate and understand various economic concepts related to a perfectly competitive firm, Doggies Paradise Inc. To determine the profit maximizing quantity, we'll need to calculate total revenue, marginal revenue, total cost, and marginal cost for each output level from one to five units.
- Total Revenue (TR) is calculated by multiplying the number of units sold by the price per unit.
- Marginal Revenue (MR) is the additional revenue generated from selling one more unit. In a perfectly competitive market, marginal revenue is equal to the price of the product.
- Total Cost (TC) is the sum of fixed costs and total variable costs at each output level.
- Marginal Cost (MC) is the additional cost incurred by producing one more unit. It is calculated by taking the change in total costs when output is increased by one unit.
To find the profit maximizing quantity, we compare marginal revenue with marginal cost. The point where MR=MC is typically where profit is maximized, given that MR>MC for all levels of output below this point and MR
Using this approach, we can plot the total revenue and total cost curves on one diagram to visualize the profit maximizing point. Similarly, we plot marginal revenue and marginal cost on another diagram. The intersection of MR and MC indicates the profit maximizing output level.