Question

A jeweler is considering producing a limited edition diamond bracelet, and she is trying to decide how many bracelets to produce. The table gives her estimated total cost for various production levels as well as the price she would charge for each bracelet. Number of bracelets Total cost (thousands) Price per bracelet 100 $215 $8100 200 $420 $7500 300 $625 $6100 400 $820 $5100 500 $1015 $4200 600 $1205 $3600 (a) Of the production levels listed in the table, which gives the highest profit? (b) Estimate the marginal cost and marginal revenue when 400 bracelets are made. marginal cost $ marginal revenue $ (c) According to the estimates in part (b), will increasing the production level higher than 400 bracelets increase profit? Yes, increasing production will increase profit. No, increasing production will not increase profit.

Answer 1

No of Bracelets	Total Cost	Price per bracelets	Total revenue	Total profit	Marginal cost	Marginal revenue
100	$215,000	$8,100	$810,000	$595,000	$215,000	$810,000
200	$420,000	$7,500	$1,500,000	$1,080,000	$205,000	$690,000
300	$625,000	$6,100	$1,830,000	$1,205,000	$205,000	$330,000
400	$820,000	$5,100	$2,040,000	$1,220,000	$195,000	$210,000
500	$1,015,000	$4,200	$2,100,000	$1,085,000	$195,000	$60,000
600	$1,205,000	$3,600	$2,160,000	$955,000	$190,000	$60,000

Question a.

At the level of 400 profit is highest i.e. $1220000

Question b.

At the level of 400 Marginal cost = $195000 and Marginal revenue = $210000. It shows for additional production of 100 units additional cost is $195000 and additional revenue is $210000.

Question c.

If production level increased from 400 then for additional unit produce marginal cost is higher than marginal profit. which results in decrease in profit. Hence production increase higher than 400 bracelets will not increase the profit.