Suppose Sarah owns a small company that makes wedding cakes. The table below shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. $$\begin{array} { | c | c | }
\hline \begin{array} { c }
\text { Number of } \
\text { Cakes Per Day }
\end{array} & \begin{array} { c }
\text { Total Cost } \
\text { Per Day }
\end{array} \
\hline 0 & \$ 100 \
\hline 1 & \$ 180 \
\hline 2 & \$ 220 \
\hline 3 & \$ 300 \
\hline 4 & \$ 400 \
\hline 5 & \$ 520 \
\hline 6 & \$ 660 \
\hline
\end{array}$$ If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $125 each, then at her profit-maximizing level of output, Sarah's profit will be ______ per day.

Question

Suppose Sarah owns a small company that makes wedding cakes. The table below shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Number of } \
\text { Cakes Per Day }
\end{array} & \begin{array} { c } 
\text { Total Cost } \
\text { Per Day }
\end{array} \
\hline 0 & \$ 100 \
\hline 1 & \$ 180 \
\hline 2 & \$ 220 \
\hline 3 & \$ 300 \
\hline 4 & \$ 400 \
\hline 5 & \$ 520 \
\hline 6 & \$ 660 \
\hline
\end{array}$$ If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $125 each, then at her profit-maximizing level of output, Sarah's profit will be ______ per day.

Quizplus · Accepted Answer

Sarah's profit-maximizing output is where marginal cost equals marginal revenue. The marginal revenue is $125 per cake. Calculating marginal costs, Sarah should produce 4 cakes, where the cost is $400. Revenue from 4 cakes is $500 (4 x $125). Profit is $500 - $400 = $100.

Suppose Sarah Owns a Small Company That Makes Wedding Cakes