Final answer:
A detailed explanation and the step-by-step calculation process for determining total revenue, total cost, and marginal costs for each output level for Doggies Paradise Inc. have been provided, along with instructions on how to find the profit maximizing quantity by equating marginal revenue to marginal cost.
Step-by-step explanation:
The student's question involves calculating total revenue, total cost, and marginal costs for Doggies Paradise Inc., a perfectly competitive firm, to determine the profit maximizing quantity. Let's create the table with calculations for each output level from one to five units.
Here's the calculation process for each output level:
- Total Revenue (TR) = Price per unit * Quantity sold
- Marginal Revenue (MR) = Change in Total Revenue/Change in Quantity (In a perfectly competitive market, MR equals the price per unit.)
- Total Cost (TC) = Fixed Costs + Total Variable Costs
- Marginal Cost (MC) = Change in Total Cost/Change in Quantity
For example, for one unit:
- TR: $72 * 1 = $72
- MR: $72 (since it's the first unit)
- TC: $100 (fixed costs) + $64 (variable costs for one unit) = $164
- MC: $64 (since it's the first unit)
The student would continue this process to complete the table for each unit level, and then plot the Total Revenue and Total Cost curves on a diagram. Next, they would plot Marginal Revenue and Marginal Cost curves on a separate diagram. The profit maximizing quantity is found where MR = MC.
Regarding the profit maximizing quantity, the firm should keep producing as long as Marginal Revenue exceeds or is equal to Marginal Cost. When Marginal Cost exceeds Marginal Revenue, the firm should stop producing additional units to maximize profit.