Question

Logan's Bike Shop is preparing the CVP analysis at sales of 50 bicycles. They have fixed costs of $2500, variable costs per bicycle of $25, and the selling price of each bicycle is $100. Calculate their contribution margin for all 50 bicycles:

a) -$1,250
b) -$2,500
c) -$3,750
d) None of the above

Answer 1

To calculate the total revenue, marginal revenue, total cost, and marginal cost for each output level, we can use the provided information. The profit maximizing quantity is 3 units, where marginal revenue equals marginal cost. Graphs can be used to illustrate the total revenue and total cost curves, as well as the marginal revenue and marginal cost curves.

Step-by-step explanation:

To calculate the total revenue, marginal revenue, total cost, and marginal cost for each output level, we can use the provided information. The total revenue can be calculated by multiplying the selling price by the quantity sold. The marginal revenue can be calculated by taking the difference in total revenue between two output levels. Total cost can be calculated by adding fixed costs and variable costs. Marginal cost can be calculated by taking the difference in total cost between two output levels.

Using the given data, we can create a table to calculate these values:

Output LevelTotal RevenueMarginal RevenueTotal Cost Marginal Cost172721641642144722084432167227870428872462184536072732270

From the table, we can see that the profit maximizing quantity is 3 units, where marginal revenue equals marginal cost.

In terms of the graphs, the total revenue and total cost curves can be plotted on one diagram, with quantity on the x-axis and revenue/cost on the y-axis. Similarly, the marginal revenue and marginal cost curves can be plotted on another diagram. The profit maximizing quantity would be the quantity at which the marginal revenue and marginal cost curves intersect.