Final answer:
To find the profit-maximizing quantity, the total revenue, total cost, and marginal cost must be calculated for each level of output. These are used to identify the production level at which the company maximizes profits, demonstrated in revenue and cost graphs.
Step-by-step explanation:
The subject question involves determining the profit-maximizing quantity of output for AAA Aquarium Co., which involves calculations related to sales revenue, costs, and profits. By calculating the total revenue, total cost, and marginal cost for each output level, we can establish where the company maximizes its profit.
For instance, the total revenue for selling one aquarium at $20 each would be $20, and the total cost (fixed plus variable) would also be $20, resulting in neither profit nor loss. The marginal cost for the subsequent aquariums can be calculated by taking the difference in the total cost for each additional unit produced.
Arbitrarily, to calculate the total revenue, multiply the number of units by the selling price. The total cost is the sum of fixed costs and total variable costs. The marginal revenue remains constant at the selling price since it's the additional revenue from selling one more unit in a competitive market, and the marginal cost is the change in total cost resulting from producing one additional unit.
Plotting these values on two diagrams will visually indicate the profit-maximizing quantity where the total revenue exceeds the total cost and marginal revenue equals marginal cost.