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 $100,what will be her profit or loss at the optimal output?

Question

Quizplus · Accepted Answer

To find the optimal output, we need to determine at which quantity the marginal cost equals the selling price of $100. 
- For the first guitar, the marginal cost is $80, which is less than $100, so the manufacturer will produce at least one guitar. 
- For the second, third, and fourth guitars, the marginal cost is $70, $60, and $50 respectively, which are all less than $100, so the manufacturer will produce these guitars as well. 
- For the fifth guitar, the marginal cost is $60, which is still less than $100, so the manufacturer will produce this guitar too.

At this point, the total cost of producing five guitars is: 
$90 (fixed cost) + $80 + $70 + $60 + $50 = $350

The total revenue from selling five guitars at $100 each is: 
$100 x 5 = $500

Therefore, the profit is: 
Total revenue - Total cost = $500 - $350 = $150

So the manufacturer will have a profit of $150 at the optimal output.

Suppose That the Total Fixed Cost for a Guitar Manufacturer