Final answer:
To determine the profit maximizing quantity for Doggies Paradise Inc., calculate total revenue, marginal revenue, total cost, and marginal cost for output levels one to five units. Then graph these values and find the point where marginal revenue equals marginal cost.
Step-by-step explanation:
Calculating Costs and Revenues for Doggies Paradise Inc.
To analyze the profitability of Doggies Paradise Inc., we need to calculate the total revenue, marginal revenue, total cost, and marginal cost for different levels of output. Assume the firm sells dog coats for $72 each, faces fixed costs of production totaling $100, and incurs variable costs that depend on the output level.
Here is the table breaking down the calculations for output levels from one to five units:
- Total Revenue (TR): Calculated as the number of units sold times the price per unit ($72).
- Variable Costs (VC): The given costs for each unit level.
- Total Cost (TC): Calculated as the sum of fixed costs ($100) and variable costs for each unit level.
- Marginal Revenue (MR): The additional revenue from selling one more unit, which in a perfectly competitive market is equal to the price of the product ($72).
- Marginal Cost (MC): The additional cost of producing one more unit. It is found by taking the change in total cost when one more unit is produced.
After calculating these values for each output level, you would then graph the total revenue and total cost curves on one diagram, and the marginal revenue and marginal cost curves on another diagram. The intersection of the MR and MC curves indicates the profit maximizing quantity.
This entails looking for the output level where MR equals MC, which is where profit is maximized in a perfectly competitive market. Assuming you have completed the table and drawn the diagrams, you would then identify the output level at which this occurs.