Question

16.6 AmeriCam manufactures and sells motion picture cameras. The graph of the revenue and cost functions for the production and sale of 3 cameras are shown below. Both cost and revenue are in dollars. Revenue/Cost 18000 15000 12000 9000 6000 3000 Cameras Sold 1 10 20 30 40 50 60 70 80 90 100 (a) At what production/sales level does the maximum profit occur? Answer with units: (b) According to the graph, what is the maximum profit? Answer with units: (c) If the fixed cost increases, will the production level which maximizes profit be increased, decreased, or remain the same? increase decrease remain the same

Answer 1

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Using Graph we can see that from 20 camera to 61(Approx) cameras sales revenue is more than cost. As per question we need to find prodcution level at which maximum profit occures. This we can find out by analysing the Gap between the cost line (linear staight line ) and Sales line (u line). Maximum Gap between the cost line anmd sales line would give us the maximum profit. At 40 camera sold level, we noticed that gap between cost and sales line is maximum. At this level cost is 12000 and sales is 15000 Final Answer - 40 Units Based on Part A, we identified that At 40 camera sold level, we noticed that gap between cost and sales line is maximum, which also means that profit at this level would be highest. Sales 15000 Cost (Both Fi) 12000 Profit 3000 Final Answer - 3000 If fixed cost is increase. Then to cover this fixed cost we need to produce more unit. Final Answer - Increase