Final answer:
A may have higher average costs or is not producing at the profit-maximizing quantity, while Product B seems to be closer to this optimal point. A firm maximizes profits where marginal revenue equals marginal costs.
Step-by-step explanation:
Given that Buckel Co. has two new products with equal sales, the same selling price, identical costs, and the same rate of return, but differing actual profits relative to the desired profit, we can deduce certain factors influencing their profitability. Since the profit equation is =(Price)(Quantity produced)-(Average cost)(Quantity produced), and assuming markets are perfectly competitive, firms cannot choose their selling price, which is determined by market demand and supply. This suggests that firms face a perfectly elastic demand curve.
Product A and B's difference in actual profits indicates variations in their quantity produced or average cost per unit. Since price, cost, and return on investment are uniform, Product A may not be producing the optimal quantity, or may have inefficiencies causing higher average costs per unit. Conversely, Product B might be producing at or close to the profit-maximizing quantity where total revenues most closely align with total costs.
To maximize profits, a firm should produce the quantity where the marginal revenue equals marginal cost. If marginal costs are less than marginal revenues, like with Product B, expanding production could lead to higher profits until they equalize. However, if Product A's marginal costs exceed its marginal revenue, this could explain why it is earning less than the desired profit. Lastly, if the price set for the products is too low, leading to a scenario where total costs are higher than total revenues at all quantities, both products would incur losses, though Product A would likely be impacted more severely.