Question

If a shoe company has $1 million in fixed costs, its average shoe sells for $50 a pair, and variable costs are $30 per unit, how many units does the company need to sell to break even? (Show work)

Answer 1

The profit-maximizing quantity is 4 units.

Step-by-step explanation:

Total Revenue, Marginal Revenue, Total Cost, and Marginal Cost

Output Level (units) | Total Revenue ($) | Marginal Revenue ($) | Total Cost ($) | Marginal Cost ($)
1 | 72 | 72 | 84 | 84
2 | 144 | 72 | 109 | 25
3 | 216 | 72 | 143 | 34
4 | 288 | 72 | 174 | 31
5 | 360 | 72 | 200 | 26

Profit-Maximizing Quantity

The profit-maximizing quantity is the level of output where marginal revenue is equal to marginal cost. In this case, the profit-maximizing quantity is 4 units.