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 determine the profit-maximizing price, we need to find the point where marginal revenue (MR) equals marginal cost (MC). From the table, we can calculate that the MR is the same as the price, and the MC is $80. 
To find the profit-maximizing quantity, we can look at the demand schedule and see that at a price of $200, the quantity demanded is 500 chairs. Therefore, the profit-maximizing quantity is 500 chairs. 
To calculate the profit, we can subtract the total cost from the total revenue. The total revenue at a price of $200 and a quantity of 500 is $100,000. The total cost is $80 per chair multiplied by 500 chairs, which is $40,000. Therefore, the profit is $100,000 - $40,000 = $60,000. Since the fixed cost is $210,000, the final profit is $60,000 - $210,000 = -$150,000, which is a loss of $150. However, the question only asks for the profit (or loss) at the profit-maximizing price, which is $150 profit.

The Table Below Presents the Expected Cost and Demand Schedules