Question

Costs and Profit Maximization: Work It Out 5

Suppose Margie decides to lease a photocopier and open up a black‑and‑white photocopying service in her dorm room for use by faculty and students. Her total cost, as a function of the number of copies she produces per month, is given in the table.

Number of Photocopies Per Month	Total Cost	Fixed Cost	Variable Cost	Total Revenue	Profit
0	$100	$100	$0	$0	-$100
1,000	$110	$100	$10	$60	-$50
2,000	$125	$100	$25	$120	-$5
3,000	$145	$100	$45	$180	$35
4,000	$175	$100	$75	$240	$65
5,000	$215	$100	$115	$300	$85
6,000	$285	$100	$185	$360	$75

c. If the lease rate on the copier were to increase by $50 per month, how would that impact Margie’s profit‑maximizing level of output?

Margie would

have to decrease output to maximize profits.

have to increase output to maximize profits.

not change her level of output.

What will she do when it is time to renew her lease?

Margie will

renew her lease since she is still making above‑normal profits despite the increase in rent.

renew her lease only if she can renegotiate the rent to its previous levels.

not renew her lease since her profits have decreased.

How would this $50 increase in the lease rate affect Margie's profit?

Margie's profit would

decrease.

increase.

stay the same.

Answer 1

Number of Photocopies Per Month	Total Cost	Fixed Cost	Variable Cost	Total Revenue	Profit
0	$100	$100	$0	$0	($100)
1,000	$110	$100	$10	$60	($50)
2,000	$125	$100	$25	$120	($5)
3,000	$145	$100	$45	$180	$35
4,000	$175	$100	$75	$240	$65
5,000	$215	$100	$115	$300	$85
6,000	$285	$100	$185	$360	$75
Increase in lease to $50
Number of Photocopies Per Month	Total Cost	Fixed Cost	Variable Cost	Total Revenue	Profit
0	$150	$150	$0	$0	($150)
1,000	$160	$150	$10	$60	($100)
2,000	$175	$150	$25	$120	($55)
3,000	$195	$150	$45	$180	($15)
4,000	$225	$150	$75	$240	$15
5,000	$265	$150	$115	$300	$35
6,000	$335	$150	$185	$360	$25

Due to increase in lease rate, fixed cost rises from $100 to $150, profit maximizing level of output does not change from 5,000.

Option B is correct as she should renew her lease because she is still making positive profit of $35 even though it have decreased from $85.

It reduce Margie's profit. Option A is correct.