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Unit Costs; Profit Maximizing output

The controller for Canandaigua Vineyards, Inc. has predicted the following costs at various levels of wine output.

(See attached)

The company's marketing manager has predicted the following prices for the firm's fine wines at various levels of sales.

(See attached)

1. Calculate the unit costs of wine production and sales at each level of output. At what level of output is the unit cost minimized?

2. Calculate the company's profit at each level of production. Assume that the company will sell all of its output. At what production level is profit maximized?

3 Which of the three output levels is best for the company?

4. Why does the unit cost of wine decrease as the output level increases? Why might the sales price per bottle decline as sales volume increase.

(The problem is putting it into a formula in order for profit maximization) I can analyze data it is getting it put into context that I don't know where to start.


Solution Preview

Answer 1: Please see the excel file for unit costs. The row is highlited in yellow. Unit cost is minimized at the 20,000 level.

Answer 2: Please see the excel file for profits. The row is highlited in green. Profit is maximized at ...

Solution Summary

The solution answers the questions below in detail.