Final answer:
To calculate the profit maximizing quantity for Doggies Paradise Inc., one needs to compute total revenue, marginal revenue, total cost, and marginal cost for each output level.
Marginal revenue remains constant at $72, while marginal cost can be calculated from the change in total variable costs. The profit maximizing quantity is where marginal revenue equals marginal cost.
Step-by-step explanation:
The student's question is about calculating a variety of costs and revenues for a perfectly competitive firm, Doggies Paradise Inc., which sells winter coats for dogs. To address this question, one must understand concepts like variable cost, total revenue (TR), marginal revenue (MR), total cost (TC), and marginal cost (MC).
The variable cost changes with the level of output, whereas fixed costs remain constant regardless of the output.
Here is a table that summarizes the costs and revenues for Doggies Paradise Inc.:
Marginal revenue is the additional revenue from selling one more unit, which in a perfectly competitive market, is equal to the price.
For Doggies Paradise Inc., MR equals the selling price of $72 per coat. Marginal cost is the additional cost incurred from producing one more unit, which is the change in total variable cost at each level of output. The profit maximizing quantity is where MR equals MC.
After calculating these figures, you can create diagrams for total revenue and total cost curves, as well as marginal revenue and marginal cost curves, to visually interpret the profit-maximizing quantity.
This is where the MR and MC curves intersect, beyond which producing additional units would not add to profits.