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    What is the profit maximizing output?

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    John is considering opening a shop to make desks. He estimates the cost information for the first-through-the-ninth desk (nine is his estimated maximum monthly output).

    The first desk costs $520 to produce, including $380 in overhead expenses.
    The price of the desk has been set at $199.
    The additional desk have the following additional variable expenses:

    2nd desk $120 6th desk $140
    3rd desk $110 7th desk $190
    4th desk $100 8th desk $260
    5th desk $110 9th desk $375

    a. How much is the average variable cost of the 1st desk ?

    b. How much is average fixed cost at an output of 5?

    c. How much is average total (unit) cost at an output of 6?

    d. How much is average variable cost at an output of 4?

    e. What is the profit maximizing output?

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    Solution Preview

    Here, fixed cost = $380

    a. Average Variable cost for 1st desk = 520 -380 =$140

    b. Average fixed cost at an output of 5 = FC/Q = ...

    Solution Summary

    The profit maximizing output is determined. The additional desk for additional variable expenses are determined.