Question

Zuperdry regurarly sells winter jackets in their stores. This year, the cost of jacket per unit is$375. Based on market analysis, the appropriate selling price this year is $525. The ordered jacket usually arrive in september and will be offered at the price until February. Unsold items will be discounted by 60% in March. During September to February, weekldy sales fluctuate at an average 750 units and standard deviation 111 unit.

a. We need to order at a recommended quantity (Q)……… unit

Answer 1

To calculate the profit-maximizing quantity for Doggies Paradise Inc., we must determine total and marginal revenues and costs for output levels of one to five units, and then assess where marginal revenue equals marginal cost.

Step-by-step explanation:

The student question pertains to computing profit-maximizing quantities for a perfectly competitive firm, Doggies Paradise Inc., that sells dog winter coats. To find the profit-maximizing quantity, we calculate the total revenue, marginal revenue, total cost, and marginal cost for different output levels. The selling price is $72 per coat, and fixed costs are $100. Variable costs vary with the number of units produced.

For the calculations, we construct a table with outputs ranging from one to five units. Each row calculates the total revenue (price multiplied by quantity), marginal revenue (change in total revenue for an additional unit), total cost (fixed cost plus variable cost), and marginal cost (change in total cost for an additional unit). The diagrams are then drawn to visually compare the total revenue and total cost curves, and the marginal revenue and marginal cost curves. Profit maximization occurs at the output level where marginal revenue equals marginal cost. In this scenario, the profit-maximizing quantity is where the marginal cost curve intersects the marginal revenue curve on the graph, which typically occurs before the marginal cost exceeds the marginal revenue.