Question

Output per month   Price   Total Revenue   Total Cost   Total Profit   Marginal
Revenue*   Marginal Cost*   Average Total Cost   Profit per Unit (Price Minus Average Cost)
0   $ 1,000     $ 0   $ 60,000   -$60,000   -   -   -   -
100   1,000   100,000   90,000   10,000   $ 1,000    $ 300   $900   $100
200   1,000   200,000   130,000   70,000   1,000   400   650   350
300   1,000   300,000   180,000   120,000   1,000   500   600   400
400   1,000   400,000   240,000   160,000   1,000   600   600   400
500   1,000   500,000   320,000   180,000   1,000   800   640   360
600   1,000   600,000   420,000   180,000   1,000   1,000   700   300
700   1,000   700,000   546,000   154,000   1,000   1,260   780   220
800   1,000   800,000   720,000   80,000   1,000   1,740   900   100
900   1,000   900,000   919,800   -19,800   1,000   1,998   1,022   -22
*Note that output levels are calibrated in hundreds in this example; that's why we have divided the change in total costs and revenues from one output level to another by 100 to calculate marginal revenue and marginal cost. Very few manufacturers deal in units of 1.

(a) What were the fixed costs of production for the firm?

$

(b) At what rate of output was profit per computer maximized? (Choose the highest output level.)

computers per month

(c) At what output rate was total profit maximized? (Choose the highest output level.)

computers per month

Answer 1

Output (per month)	Price ($)	Total Revenue ($)	Total cost ($)	Total Profit ($)	Marginal Revenue ($)	Marginal Cost ($)	Average total cost ($)	Profit per unit ($)
0	1000	0	60000	-60000	-	-	-	-
100	1000	100000	90000	10000	100000	30000	900	100
200	1000	200000	130000	70000	100000	40000	650	350
300	1000	300000	180000	120000	100000	50000	600	400
400	1000	400000	240000	160000	100000	60000	600	400
500	1000	500000	320000	180000	100000	80000	640	360
600	1000	600000	420000	180000	100000	100000	700	300
700	1000	700000	546000	154000	100000	126000	780	220
800	1000	800000	720000	80000	100000	174000	900	100
900	1000	900000	919800	-19800	100000	199800	1022	-22

I have rearregnged the table above.

a) Total cost = total variable cost + total fixed cost.

Fixed costs are independent of output and hence even the output is zero, there will be some amount of fixed cost.
Variable costs are dependent of output. If output is zero, there will be no variable cost.

Hence if output is zero, total cost = total fixed cost.
In this case, total fixed cost = $60000 (total cost at output = 0)

b) From the profitper unit column above, maximum profit per unit obtained is $400, which is obtained by selling 300 & 400 computers.(marked italic). If we choose the highest output, then 400 computers will obtain maximum profit per unit. (marked bold)

c)From the total profit column above, maximum profit obtained is $18000, which is obtained by selling 500 & 600 computers.(marked italic). If we choose the highest output, then 600 computers will obtain maximum profit. (marked bold)