Final answer:
To address the question posed, one must calculate total revenue, marginal revenue, total cost, and marginal cost for output levels from one to five units, then illustrate these relationships with diagrams identifying the profit maximizing quantity as where marginal cost equals marginal revenue.
Step-by-step explanation:
The problem provided describes a scenario for a firm named Doggies Paradise Inc. in a perfectly competitive market, and asks for the calculation of several economic measures as the output level varies from one to five units. By constructing a table, we will calculate the total revenue, marginal revenue, total cost, and marginal cost for each output level. Then, we'll create diagrams to graphically represent the relationship between these measures. Lastly, we will identify the profit maximizing quantity based on the marginal cost and marginal revenue.
When calculating these economic measures, we see that as the output level increases, the total revenue increases in a linear fashion because the selling price remains constant in a perfectly competitive market. Conversely, the total cost increases at different rates, according to the variable cost associated with each additional unit produced, resulting in differing marginal costs. The profit maximization occurs at the point where marginal cost equals marginal revenue.