Answer and Explanation:
To determine the profit-maximizing level of output for ABC Inc, we need to compare its costs of production with its unit selling price. Let's assume the costs of production for ABC Inc are as follows:
- Fixed costs: These are costs that do not vary with the level of output. Examples include rent, insurance, and salaries of fixed employees. Let's say ABC Inc has fixed costs of AED 10,000.
- Variable costs: These are costs that vary with the level of output. Examples include raw materials and labor costs. Let's assume ABC Inc has variable costs of AED 20 per unit.
To calculate the total costs, we need to consider both fixed and variable costs. The total costs can be calculated using the formula:
Total Costs = Fixed Costs + (Variable Costs per unit * Quantity)
Let's consider different levels of output to determine the profit-maximizing quantity:
1. If ABC Inc produces 0 units, its total costs would be AED 10,000 (only fixed costs).
2. If ABC Inc produces 100 units, its total costs would be AED 10,000 + (AED 20 * 100) = AED 12,000.
3. If ABC Inc produces 200 units, its total costs would be AED 10,000 + (AED 20 * 200) = AED 14,000.
By analyzing the costs at different levels of output, we can determine the profit-maximizing quantity for ABC Inc. The firm should continue increasing its output until the marginal cost (additional cost of producing one more unit) equals the marginal revenue (additional revenue from selling one more unit). This is because producing more units beyond this point would result in higher costs than revenues, leading to a decrease in profits.
However, since we do not have information about the marginal revenue or the relationship between quantity and revenue, we cannot determine the exact profit-maximizing quantity in this case. To make a more precise determination, additional information about the firm's demand curve or revenue function would be necessary.
In summary, to find the profit-maximizing level of output for ABC Inc, we would need more information about the relationship between quantity and revenue, such as the demand curve or revenue function.