Final answer:
To maximize profits, the firm must calculate and analyze total revenue, total cost, marginal revenue, and marginal cost for each output level, which can be visualized on a graph to identify the profit-maximizing quantity.
Step-by-step explanation:
The question involves the introduction of a new gas delivery system by the gas division of Power-U-Up, requiring an understanding of how to calculate profit maximizing levels of output. This involves the use of key microeconomic principles such as fixed costs, variable costs, selling price per unit, and capacity per period. In this scenario, a firm is operating in a perfectly competitive market and needs to assess financial metrics to determine the most profitable level of production.
To solve this, one must calculate total revenue (TR), which is the selling price per unit times the number of units sold. Profit maximization occurs where the difference between total revenue and total cost is the greatest. Total cost (TC) is the sum of fixed and variable costs for each output level. Marginial revenue (MR) and marginal cost (MC) for each additional unit are also critical. These calculations can be depicted graphically where the intersection of marginal revenue and marginal cost indicates the quantity of output that maximizes profit.