Final answer:
To find the profit maximizing quantity for Doggies Paradise Inc., a detailed calculation of total revenue, marginal revenue, total cost, and marginal cost for each level of production must be performed. Profit maximization is achieved where the marginal cost curve intersects the marginal revenue curve.
Step-by-step explanation:
Calculating Profit Maximization for Doggies Paradise Inc.
In order to calculate the profit maximizing quantity for Doggies Paradise Inc., a perfectly competitive firm selling winter coats for dogs, one must perform a series of calculations to determine the total revenue, marginal revenue, total cost, and marginal cost for each output level. The company sells each coat for $72 and has fixed costs of $100. The variable costs vary depending on the number of units produced.
First, let's construct a table with the given data:
The total cost (TC) for each output level is the sum of fixed costs and variable costs.
The total revenue (TR) is equal to the price multiplied by the quantity sold. Marginal revenue (MR) in a perfectly competitive market is constant and equal to the price of the product, which is $72 in this case. Marginal cost (MC) is the additional cost of producing one more unit and is calculated by finding the change in total cost from producing one more unit.
After plotting the total revenue and total cost curves on one diagram, and the marginal revenue and marginal cost curves on another, the profit maximizing quantity is where the marginal cost curve intersects the marginal revenue curve. This is because it's the point where the cost of producing an additional item equals the revenue gained from selling it, meaning profit can no longer be increased by producing additional units.