Question

Meadow Inc. sells shoes for $169 each. The variable costs per shoe are $93 and the fixed costs per week are $5401. If 8.5 shoes were sold, calculate the net income in a week. (Express the answer with a positive for profit or negative sign for loss, rounded to the nearest cent).

Answer 1

To calculate total revenue, multiply the number of units sold by the price per unit. To calculate marginal revenue, subtract the previous total revenue from the current total revenue. To calculate total cost, add the fixed costs to the variable costs. To calculate marginal cost, subtract the previous total cost from the current total cost. The profit-maximizing quantity is the level of output where marginal cost is equal to marginal revenue, which in this case is four units.

Step-by-step explanation:

To calculate the total revenue for each output level, multiply the number of units sold by the price per unit:

For one unit, total revenue = 1 x $72 = $72

For two units, total revenue = 2 x $72 = $144

For three units, total revenue = 3 x $72 = $216

For four units, total revenue = 4 x $72 = $288

For five units, total revenue = 5 x $72 = $360

To calculate the marginal revenue, subtract the previous total revenue from the current total revenue:

For the first unit, marginal revenue = $72 - $0 = $72

For the second unit, marginal revenue = $144 - $72 = $72

For the third unit, marginal revenue = $216 - $144 = $72

For the fourth unit, marginal revenue = $288 - $216 = $72

For the fifth unit, marginal revenue = $360 - $288 = $72

To calculate the total cost for each output level, add the fixed costs to the variable costs:

For one unit, total cost = $100 + $64 = $164

For two units, total cost = $100 + $84 = $184

For three units, total cost = $100 + $114 = $214

For four units, total cost = $100 + $184 = $284

For five units, total cost = $100 + $270 = $370

To calculate the marginal cost, subtract the previous total cost from the current total cost:

For the first unit, marginal cost = $164 - $0 = $164

For the second unit, marginal cost = $184 - $164 = $20

For the third unit, marginal cost = $214 - $184 = $30

For the fourth unit, marginal cost = $284 - $214 = $70

For the fifth unit, marginal cost = $370 - $284 = $86

Based on the data, the profit-maximizing quantity would be the level of output where marginal cost is equal to marginal revenue. In this case, the profit-maximizing quantity is four units.