Question

Sheridan Corporation makes a mechanical stuffed alligator. The following information is available for Sheridan Corporation's expected annual volume of 500,000 units: The company has a desired ROI of 15%, and the desired operating income is ($750,000). To achieve this, the target selling price per unit should be set at ($7) per unit.

Answer 1

To calculate total revenue, multiply the selling price per unit by the number of units sold. To calculate marginal revenue, subtract the total revenue of the previous level from the total revenue of the current level. To calculate total cost, add fixed costs and variable costs. To calculate marginal cost, subtract the total cost of the previous level from the total cost of the current level. The profit-maximizing quantity of output is the level where the marginal revenue equals the marginal cost.

Step-by-step explanation:

To calculate the total revenue, we multiply the selling price per unit by the number of units sold. For example, for one unit, the total revenue is $20. For two units, the total revenue is $40. For three units, the total revenue is $60, and so on.

To calculate the marginal revenue, we subtract the total revenue of the previous level from the total revenue of the current level. For example, for two units, the marginal revenue is $20. For three units, the marginal revenue is $20, and so on.

To calculate the total cost, we add the fixed costs and variable costs. For example, for one unit, the total cost is $40. For two units, the total cost is $45. For three units, the total cost is $55, and so on.

To calculate the marginal cost, we subtract the total cost of the previous level from the total cost of the current level. For example, for two units, the marginal cost is $5. For three units, the marginal cost is $10, and so on.

The profit-maximizing quantity of output is the level of output where the marginal revenue equals the marginal cost. From the given information, we can see that the marginal revenue and marginal cost are both increasing as the quantity of output increases. Therefore, the profit-maximizing quantity of output is the level where the marginal revenue is equal to the marginal cost.

Here is a summary of the calculations:

1. Output Level: 1 unit
   Total Revenue: $20
   Marginal Revenue: $20
   Total Cost: $40
   Marginal Cost: N/A
2. Output Level: 2 units
   Total Revenue: $40
   Marginal Revenue: $20
   Total Cost: $45
   Marginal Cost: $5
3. Output Level: 3 units
   Total Revenue: $60
   Marginal Revenue: $20
   Total Cost: $55
   Marginal Cost: $10
4. Output Level: 4 units
   Total Revenue: $80
   Marginal Revenue: $20
   Total Cost: $70
   Marginal Cost: $15
5. Output Level: 5 units
   Total Revenue: $100
   Marginal Revenue: $20
   Total Cost: $90
   Marginal Cost: $20