Assume that the following data is for a profit-maximizing manufacturer:

-Refer to the above information to answer this question.If the total fixed costs were to increase by $50 and the price is $75 per unit,what are the profit maximizing output and the level of profits?

Question

Assume that the following data is for a profit-maximizing manufacturer:
 
-Refer to the above information to answer this question.If the total fixed costs were to increase by $50 and the price is $75 per unit,what are the profit maximizing output and the level of profits?

Quizplus · Accepted Answer

To find the profit maximizing output, we need to compare the marginal cost (MC) and marginal revenue (MR). With a fixed cost increase of $50, the total cost (TC) curve will shift upwards, but the shape of the marginal cost curve will remain the same. The profit maximizing output occurs where MC=MR. The given information tells us that the marginal cost is constant at $25 per unit.

At a price of $75 per unit, the marginal revenue is also $75 per unit. Solving MC=MR, we get:
$25Q = $75
Q = 3

Therefore, the profit maximizing output level is 6 units corresponding to a $450 total revenue.

To find the level of profit, we need to subtract the total variable costs (TVC) and total fixed costs (TFC) from the total revenue (TR).

TVC = MC*Q = $25 * 6 = $150 
TFC = $100 
TR = $450

Profit = TR - TVC - TFC = $450 - $150 - $100 = $200

Therefore, the level of profits is $200, and the best choice is option C.

Assume That the Following Data Is for a Profit-Maximizing Manufacturer