Answered: If profit is maximum at sales of 700…

If profit is maximum at sales of 700 units, does the firm have no choice but to limit sales at this level? Explain your answer.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.7IP

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Question

1. If profit is maximum at sales of 700 units, does the firm have no choice but to limit sales at this level? Explain your answer.

2. A business firm produces and sells a particular Variable cost is P30/unit. Selling price is P40 per unit. Fixed cost is P60,000.

a. What is the break-even quantity and break-even point? Show your solution.

3. A manager makes the statement that output should be expanded as long as average revenue exceeds average Does this strategy make sense? Explain.

4. Suppose that the steel firm’s costs are shown below: Complete the table and determine the optimal output to be

Price of steel P17 per unit.

Output (Q)	TFC	TVC	TC	MC	TR	MR	Profit/Loss
0	500	0
1	500	50
2	500	90
3	500	140
4	500	200
5	500	270
6	500	350
7	500	450
8	500	600
9	500	800

Definition Definition Amount earned or lost on the sale of one or more items is referred to as the profit or loss on that item

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