The schedule of total costs for a table-manufacturing company is presented in the table below. The firm sells its product in a price-taker market at $120 per table. What is the maximum monthly profit (or minimum loss) that the firm will be able to earn?

A) $15 loss
B) zero
C) $5 profit
D) $10 profit

Question

The schedule of total costs for a table-manufacturing company is presented in the table below. The firm sells its product in a price-taker market at $120 per table. What is the maximum monthly profit (or minimum loss) that the firm will be able to earn?

A) $15 loss 
B) zero 
C) $5 profit 
D) $10 profit

Quizplus · Accepted Answer

To calculate the profit, we need to subtract the total cost from the total revenue. Total revenue can be calculated by multiplying the selling price by the number of tables produced:

Total revenue = $120 x 1,000 = $120,000

To find the total cost, we need to add up the fixed costs, variable costs, and semi-variable costs for each level of production:

- For 800 tables: $24,000 + 8,800 + (0.5 x $3,200 x 800) = $48,000 
- For 900 tables: $24,000 + 9,400 + (0.5 x $3,200 x 900) = $51,000 
- For 1,000 tables: $24,000 + 10,000 + (0.5 x $3,200 x 1,000) = $54,000

Therefore, the maximum profit would be:

Profit = Total revenue - Total cost 
Profit = $120,000 - $54,000 
Profit = $66,000

However, since the question is asking for the maximum monthly profit (or minimum loss), we need to consider the scenario where the production level is at its lowest point, which is 800 tables.

Profit = Total revenue - Total cost 
Profit = ($120 x 800) - $48,000 
Profit = $96,000 - $48,000 
Profit = $48,000

Since the total cost is lower than the total revenue, this means that the company is making a profit at 800 tables. The maximum profit would therefore be at 1,000 tables, but the minimum profit (or maximum loss) would be at 800 tables.

Therefore, the answer is C) $5 profit.

The Schedule of Total Costs for a Table-Manufacturing Company Is