(a) Siti bakes cakes for special occasions. She produces cake in
her own home
without any help, unless she has a large number of orders on a particular day.
Given the following information, construct a table indicates Total Cost (TC),
Total Fixed Costs (TFC), Total Variable Cost (TVC), Average Total Cost
(ATC) and Marginal Cost (MC) for producing from 0 through 8 cakes per
day. If Siti can sell from 0 through 8 cakes at RM35 each, how many will she
choose to produce and sell per day if she is trying to maximize profit? How
much profit/loss does she earn at the profit maximizing level of output?
The total cost of producing 5 cakes is RM135
Total fixed cost for 1 cake is RM25
The marginal cost of the 8th cake RM91
The average total cost per cake when 3 cakes or 4 cakes are made is
The total variable cost of producing 7 cakes is RM220
The marginal cost of the 6th cake is RM45
The total cost of 2 cakes is RM60
The total variable cost of 1 cake is RM25.
Profit is maximized when P >= MC and MC is increasing.
(i) When P = 35:
When Q = 5, P > MC (35 > 10) but when Q = 6, P < MC (35 < 45). So
Q = 5
(ii) When Q = 5,
Total revenue (TR) = P x Q = 35 x 5 = 175
Profit = TR - TC = 175 - 135 = 40
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