The table below presents the expected cost and demand schedules confronting Handy John, a chair manufacturer. Given this information, what will be the profit (or loss) of Handy John at the profit-maximizing price?

Question

Quizplus · Accepted Answer

To maximize profit, Handy John should produce at the quantity where marginal cost is equal to marginal revenue, which is when output is 2 chairs. At this output level, the price should be set at $200, which is the price where the quantity demanded is 2. 
Total cost at output level 2 is $300 (2 chairs × $150 per chair), so total revenue at this output level is $500 (2 chairs × $250 per chair). 
Therefore, profit = total revenue - total cost = $500 - $300 = $200 profit.

The Table Below Presents the Expected Cost and Demand Schedules