Question

Assume fixed costs are $200/day and labor costs are $80 per day per worker (assume labor costs are the only variable costs). If the company could sell cases of snack cakes for $14 per case, how many cases of snack cakes should the company produce in order achieve the highest profit possible?

# of Workers	Q of Snack Cakes	TVC	TFC	TC	MC
0	0
1	5
1.6	10
2	15
2.35	20
2.75	25
3.22	30
3.75	35
4.35	40
5	45
5.75	50
6.6	55
7.5	60
8.5	65
10	70

Supporting Mateials

5

10

15

20

25

30

35

40

45

50

55

60

65

Question 27

Assume fixed costs are $200/day and labor costs are $80 per day per worker (assume this represents all variable costs). If the company could sell snack cakes for $14 per case, the firm would

# of Workers	Q of Snack Cakes	TVC	TFC	TC	MC
0	0
1	5
1.6	10
2	15
2.35	20
2.75	25
3.22	30
3.75	35
4.35	40
5	45
5.75	50
6.6	55
7.5	60
8.5	65
10	70

Supporting Mateials

Earn a profit

Just break even

Make a loss but produce in the short run

make a loss and produce zero output

Answer 1

Answer

TVC=number of workers *wage

TVC(Q)=w*L

w=wage and L=number of workers

TVC(5)=1*80=80

TVC(10)=1.6*80=128 and so on

TFC=$200 given

Total cost =TVC+TFC

TC(5)=80+200=280

TC(10)=128+200=328 and so on

MC(n)=(TC(n)-TC(p))/(n-p)
MC(n)=marginal cost of n th unit
TC(n)=Total cost of n units of output
TC(p)=Total cost of p unit of output
here, n>p.
MC(5)=(280-200)/(5-0)=16

MC(10)=(328-280)/(10-5)=9.6 and so on

----------

TR=P*Q

TR(5)=5*14=70

TR(10)=10*14=140 and so on

------

Profit=TR-TC

Profit(0)=0-200=-200

Profit(5)=70-280=-210 and so on

# of Workers	Q of Snack Cakes	TVC	TFC	TC	MC	TR	Profit
0	0	0	200	200		0	-200
1	5	80	200	280	16	70	-210
1.6	10	128	200	328	9.6	140	-188
2	15	160	200	360	6.4	210	-150
2.35	20	188	200	388	5.6	280	-108
2.75	25	220	200	420	6.4	350	-70
3.22	30	257.6	200	457.6	7.52	420	-37.6
3.75	35	300	200	500	8.48	490	-10
4.35	40	348	200	548	9.6	560	12
5	45	400	200	600	10.4	630	30
5.75	50	460	200	660	12	700	40
6.6	55	528	200	728	13.6	770	42
7.5	60	600	200	800	14.4	840	40
8.5	65	680	200	880	16	910	30
10	70	800	200	1000	24	980	-20

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Q1

Answer
The profit is maximum at P=MC or the nearest lower MC
P=$14 and MC=$13.6 at Q=55 units
so the profit maximizing output is 55 units

-----------------
Q2
ANswer
Option 1
   Earn a profit

Profit =TR-TC
TR=770
TC=728
Profit=770-728
=42

the firm makes a profit of $42