Question

Last year Minden Company introduced a new product and sold 15,000 units of it at a price of $44 per unit. The product's variable expenses are $44 per unit and its fixed expenses are $516,600 per year.

Required:
1. What was this product's net operating income (loss) last year?
2. What is the product's break-even point in unit sales and dollar sales?

Answer 1

The profit-maximizing quantity for Doggies Paradise Inc. is 4 units.

Step-by-step explanation:

The profit-maximizing quantity for Doggies Paradise Inc. can be determined by comparing total revenue and total cost at each output level. By calculating total revenue and total cost for each output level (one to five units) using the given information, we can see that the highest profit occurs at the output level of 4 units, where total revenue is $288 and total cost is $228.

To graphically represent this, we can sketch the total revenue and total cost curves on one diagram, and the marginal revenue and marginal cost curves on another diagram. The profit-maximizing quantity is the level of output where the marginal revenue equals the marginal cost, which in this case is 4 units.