Final answer:
To find the profit-maximizing quantity for Doggies Paradise Inc., calculations of total revenue, marginal revenue, total cost, and marginal cost are necessary for each output level. Graphical analysis of total revenue versus total cost, and marginal revenue versus marginal cost curves, reveals the most profitable production level as where marginal cost equals marginal revenue.
Step-by-step explanation:
Calculating Total Revenue, Marginal Revenue, Total Cost and Marginal Cost To determine the profit-maximizing quantity for Doggies Paradise Inc., we must first calculate the total revenue, marginal revenue, total cost, and marginal cost for each level of output from one to five units. Total revenue is found by multiplying the number of units sold by the price per unit ($72). Total cost is the sum of fixed costs ($100) and total variable costs for the respective output level. Marginal revenue in a perfectly competitive market is the price of the good, while marginal cost for each additional unit is the change in total cost from producing one additional unit. Revenue and Cost Curves Analysis By plotting the total revenue and total cost curves, we can visually determine the profit-maximizing output level as the point where total revenue exceeds total cost by the largest margin.
Similarly, plotting the marginal revenue and marginal cost curves helps identify the profit-maximizing quantity where marginal revenue equals marginal cost. This is because a perfectly competitive firm will maximize profit by producing until the cost of producing one more unit (marginal cost) equals the revenue generated by that unit (marginal revenue).To calculate the package contribution margin for Unique Company, we need to calculate the contribution margin for each product and then multiply it by the sales mix percentage.The contribution margin for Product A is $120 ($300 - $180), while the contribution margin for Product B is $250 ($500 - $250).The sales mix percentage for Product A is 4 and for Product B is 1. Therefore, the package contribution margin can be calculated as (4 * $120) + (1 * $250) = $490.