Suppose that the total fixed cost for a guitar manufacturer is $90.The marginal cost of the first guitar produced is $80 and decreases by $10 for the next three guitars produced.Thereafter,the marginal cost increases by $10 for each successive guitar.
-Refer to the information above to answer this question.If the manufacturer can sell her guitars for $70,what will be her profit or loss at the optimal output?

Question

Quizplus · Accepted Answer

To determine the optimal output, we need to find the quantity where marginal cost equals marginal revenue (which in this case is the selling price of $70).

Let's first find the quantity at which marginal cost equals $70:

$80 - $10x = $70

Solving for x, we get x = 1.

So the optimal output is to produce 4 guitars - the first one at a cost of $80, and the next three at a cost of $70 each.

Total cost = fixed cost + variable cost = $90 + $80 + $70 + $70 + $70 = $380

Total revenue = 4 guitars x $70 = $280

Profit = total revenue - total cost = $280 - $380 = -$100

Therefore, the manufacturer will make a loss of $100.

Choice D is the correct answer.

Suppose That the Total Fixed Cost for a Guitar Manufacturer