Final answer:
The quantity of output that maximizes profit is where total revenue surpasses total cost by the largest amount. For Doggies Paradise Inc., the profit-maximizing quantity is where marginal revenue equals or exceeds marginal cost, which in the given scenario is at 5 units.
Step-by-step explanation:
To calculate the quantity of output that will provide the highest level of profit, one must analyze where total revenue exceeds total cost by the greatest margin. In the provided examples, maximum profit is achieved at an output between 70 and 80, highlighting a profit of $90.
This principle applies to both perfectly competitive firms and monopolies. For a perfectly competitive firm, such as Doggies Paradise Inc., the profit-maximizing quantity is determined by comparing marginal revenue to marginal cost. When marginal revenue exceeds marginal cost, producing more units adds to overall profits.
For instance, at an output of 4 units, marginal revenue is 600 and marginal cost is 250, which clearly indicates that producing the fourth unit increases overall profits. At 5 units, marginal revenue equals marginal cost which means profit levels remain static.
However, producing a sixth unit would reduce profits since the marginal cost would exceed marginal revenue. Therefore, from the given choices, the profit-maximizing level of output is 5 units for a monopoly.