Question

QUESTION 9 Jimmy is the owner of the only gelato shop on North Stradbroke lsland. He sells the gelato in cones, with the marginal cost of each gelato cone being constant at $0.80 per cone. Below is a table of potential prices and corresponding quantities of gelato cones he could sell. Quantity (cones) 50 60 70 80 90 100 Price ($/cone) 6.80 6.20 5.60 5.00 4.40 3.80 What is Jimmy's profit-maximising quantity of cones? Answer to the nearest whole number (with no decimal places)

Answer 1

Jimmy's Profit maximizing quantity of cones is where MR = MC

Given that MC = 0.8, so profit maximizing quantity of cones is where MR = MC = $0.80

Price	Quantity	Total revenue	Marginal revenue
6.80	50	340	-----
6.20	60	372	(372 - 340) / ( 60 -50) = 3.2
5.60	70	392	(392 - 372) / ( 70 - 60) = 2.0
5.00	80	400	(400 - 392) / ( 80 - 70) = 0.8
4.40	90	396	-0.4
3.80	100	380	-1.6

According to the table, MR = MC = 0.8 where quantity of cones is 80,

So,

Jimmy's Profit maximizing quantity of cones is 80 cones.