Final answer:
The concepts of total revenue, marginal revenue, total cost, and marginal cost are central to business economics, and help firms like Doggies Paradise Inc. determine the most profitable output levels in a perfectly competitive market.
Step-by-step explanation:
The subject matter relates to business, particularly to the concepts of economics and the calculation of total revenue, marginal revenue, total cost, and marginal cost. When a firm considers its production levels, these financial metrics are used to determine the most profitable course of action. In a perfectly competitive market, a firm can achieve maximum profit by setting output where marginal cost equals marginal revenue. Calculating these figures requires understanding fixed and variable costs as well as how to calculate total and marginal figures for revenue and cost. For Doggies Paradise Inc., the provided variable and fixed costs would be used to calculate the total cost for each output level by adding the variable cost for that level of output to the fixed costs.
Total revenue is calculated by multiplying the number of coats by the price. Marginal revenue in a perfectly competitive market is equal to the price per unit, so in this case, it remains constant at $72 for each additional unit sold. Marginal cost for each level is the increase in the total cost when production is increased by one unit. With this information in hand, the firm can graph these metrics to visualize the profit-maximizing output level, which is where the marginal revenue equals the marginal cost curve.