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Profit Calculation with Variable Costs

This document solves a profit maximization problem using a production function with fixed and variable costs. It calculates that variable cost per unit is $21.75 based on packaging costs. It then sets up and solves the profit maximization equation to find that optimal quantity (Q) produced is 23,000 units. It verifies the solution is correct by plugging Q back into the profit equation.

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Orko Abir
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8 views1 page

Profit Calculation with Variable Costs

This document solves a profit maximization problem using a production function with fixed and variable costs. It calculates that variable cost per unit is $21.75 based on packaging costs. It then sets up and solves the profit maximization equation to find that optimal quantity (Q) produced is 23,000 units. It verifies the solution is correct by plugging Q back into the profit equation.

Uploaded by

Orko Abir
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Problem 6-19 (4)

Keeping all other factors left constant (Catteries Paribus); we allow an appreciation to the price to
incorporate ancillary cost to make the package frilled. Since the packaging cost moves in tandem with
production quota; we can accredit the increase cost as a variable cost.
So variable cost per unit = {(409500 / 19500) + 0.75 cent} = 21.75 per unit
We know that;

= QP {FC + VCU Q}

9750 = 30Q { 180000+21.75Q}


9750 =30Q- 180000 -21.75Q
9750=8.25Q -180000
8.25Q=180000+9750

Q=

.
Q= 23000

Now; lets sift through the answer whether it is correct or not 1950= 3023000 -180000 { 21.7523000}
1950=1950 (Proved)

FC= Fixed cost


VCU= Variable cost per unit
Q= Total number of quantity produced
= Profit

Given Values;

Profit= 9750
FC=180000
VCU=21.75
Q=?

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