Question

I have a question about this solution. I don't understand why profit isn't maximized at 15,000 bottles - the overall profit at $15 per bottle (assuming that doesn't change) is higher as well as per unit than the output of 20,000 bottles (even though this was the most cost effective output). http://www.chegg.com/homework-help/unit-costs-profit-maximizing-outputthe-controller-canandaigu-chapter-2-problem-57p-solution-9780078110917-exc?token=W4flVrKd3vhEZ8mrAi_aoSLOke3As0zxscor--8wt5MX27JEwWf08jy2aVm_FDeREIZZhzhI7X3ZFQrDDHWeOfr0b2uuanPpMeO7KFyJBRmajXJPd2zhxuDhsAaMitdh

Answer 1

Profit at 10,000 bottles = total revenue - total variable costs - total fixed costs

= ($18 per bottle*10,000 bottles) - 37,000 - 100,000 - 40,000

= 180,000 - 177,000

= $3,000 profit

Profit at 15,000 bottles = total revenue - total variable costs - total fixed costs

= ($15 per bottle*15,000 bottles) - 55,500 - 100,000 - 40,000

= 225,000 - 195,500

= $29,500 profit.

Profit at 20,000 bottles = total revenue - total variable costs - total fixed costs

= ($12 per bottle*20,000 bottles) - 74,000 - 100,000 - 40,000

= 240,000 - 214,000

= $26,000

Thus the profit is maximized at 15,000 bottles and the amount of profit is $29,500.