Question

Reference information:

Product X is a consumer product with a retail price of $11.95. Retailer margins on the product ar
31%, distributor margins are 7%, and wholesaler's margins are 10% (based on the selling price).
Total retail size of the market in which Product X competes is $520MM (MM stands for millions),
and Product X's market sharet(in retail dollars) is 17.3%.
Manufacturing fixed costs of Product X are $1,400,000 and the variable costs are $1.27 per unit.
Product X spends $2,000,000 a year on advertising and has miscellaneous variable costs
(shipping and handling) of $0.04 per unit. It pays its salespeople completely on commission at 9%
of the manufacturer's selling price. Lastly, X's Product Manager has a salary of $125,000 a year.

Answer 1

To determine the profit-maximizing quantity for Doggies Paradise Inc., we must calculate and compare marginal revenue and marginal cost for each unit of production. The profit-maximizing quantity is where marginal cost equals marginal revenue.

Step-by-step explanation:

The given problem describes a perfectly competitive firm, Doggies Paradise Inc., and requires calculation of total revenue, marginal revenue, total cost, and marginal cost for up to five units of production. To find the profit-maximizing quantity, we compare marginal costs against marginal revenues.

The marginal cost (MC) is the change in total cost when an additional unit is produced, while marginal revenue (MR) is the change in total revenue from selling one additional unit. For a perfectly competitive firm, MR is equal to the price, so MR remains constant at $72 per unit in this case. To find a profit maximization point, we look for the quantity where MR equals MC, after which producing additional units would reduce profit. The provided information is not sufficient to calculate the exact figures without constructing a table and diagrams to visualize the data.