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Activity Optimization Techniques

The document summarizes an activity to determine the optimal quantity of soap a firm should produce monthly to maximize profits. The firm's total revenue and costs at different production levels are provided. Completing the table shows: 1) The optimal quantity is 7 units, where marginal revenue equals marginal cost 2) Fixed costs are $5 3) It costs $40 to produce each unit at the optimal level 4) It costs $280 to maintain fixed inputs at the optimal level Graphs of total cost and revenue, and marginal cost and revenue, show profits are maximized at a quantity of 7 units.

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Alieza
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312 views

Activity Optimization Techniques

The document summarizes an activity to determine the optimal quantity of soap a firm should produce monthly to maximize profits. The firm's total revenue and costs at different production levels are provided. Completing the table shows: 1) The optimal quantity is 7 units, where marginal revenue equals marginal cost 2) Fixed costs are $5 3) It costs $40 to produce each unit at the optimal level 4) It costs $280 to maintain fixed inputs at the optimal level Graphs of total cost and revenue, and marginal cost and revenue, show profits are maximized at a quantity of 7 units.

Uploaded by

Alieza
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CALPO, ALIEZA B.

1262 BEPMC 311 MANAGERIAL ECONOMICS

BEPMC 311 (MANAGERIAL ECONOMICS)

ACTIVITY 1: OPTIMIZATION TECHNIQUES

You are the manager of a firm that sells specialized natural-organic soap in the world. Your goal is to
determine the number of soap (S) that must be produced each month in order to maximize profits. The
total benefits (revenues) and costs to your firm of producing various quantities of soap are given in the
first three columns of the following table. Based on this scenario, complete the table and answer the
accompanying questions:

Q TR ($) TC ($) VC ($) Profit ($) MR ($) MC ($) AFC AVC ATC
0 0 5 - - - - - - -
1 200 10 5 190 200 10 190 5 10
2 380 30 25 350 180 20 160 12.5 15
3 540 60 55 480 160 30 130 18.33 20
4 680 100 95 580 140 40 100 23.75 25
5 800 150 145 650 120 50 70 29 30
6 900 210 205 690 100 60 40 34.17 35
7 980 280 275 700 80 70 10 32.29 40
8 1,040 360 355 680 60 80 -20 44.375 45
9 1,080 450 445 630 40 90 -50 49.44 50
10 1,100 550 545 550 20 100 -80 54.5 55

1. Complete the table above. (14 points)

2. What level of soaps will the firm produce in order to maximize profit? (2 points)
 By using the MR=MC concept, the firm should produce 7 units of soaps to
maximize the profit

3. What is the value of fixed cost? (2 points)


 The fixed cost is $5

4. How much does it cost to produce per unit of the good at the profit maximizing level? (1 point)
 It will cost $40 to produce a unit of the good.

5. How much will it cost to maintain the inputs that are fixed at the profit maximizing level? (1
point)
 It will cost $280 to maintain the inputs that are fixed at the profit maximizing level.

6. Graph the total cost and total revenue in one graph and highlight the section in which the firm is
maximizing profit. (5 points)

MAXIMIZING PROFIT
TR-TC CURVE
7. J
TC TR u
1800
s
1100
1080 t
TOTAL REVENUE AND TOTAL COST

1600
1040
1400 980
1200 900
800
1000
680
800
540 550
600 450
380 360
400 280
200 150 210
200 60 100
0 10 30
05
0 1 2 3 4 5 6 7 8 9 10

QUANTITIY

below graph of #2, graph MR and MC curves (let the horizontal axis be parallel to the horizontal
axis of the graph in #2, with the same values of Q just as the one drawn in #2). (5 points)

MR-MC CURVE
MR Column1
250

200
MARGINAL COST AND MARGINAL

200 180
160
140
150
120
100 100
90
100 80 80
70
60 60
50
REVENUE

40 40
50 30
20 20
10
0
1 2 3 4 5 6 7 8 9 10

QUANTITY

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