Redstone Clayworks Inc. is located in Sedona, Arizona, and manufactures clay fire pits for patios. They are one of about two dozen firms around the world that manufacture and sell clay fire pits for retailers such as Home Depot, Lowe's, Front Gate, and other upscale home product chains. There is virtually no product differentiation. A clay fire pit is a clay fire pit.
The spreadsheet below gives some of Redstone's production cost data.
Assume that the world market demand and supply curves for clay fire pots intersect at $190 per unit.
Q
TC
TFC
TVC
AFC
AVC
ATC
SMC
TR
MR
Profit
Average
Profit
Profit
Margin
0
7000
7000
NIL
NIL
NIL
NIL
NIL
0
NIL
-7000
NIL
nil
100
14000
7000
7000
70
70
140
70
19000
190
5000
50
26%
200
23000
7000
16000
35
80
115
90
38000
190
15000
75
39%
300
32000
7000
25000
23.33
83.33
106.67
90
57000
190
25000
83.33
44%
400
43000
7000
36000
17.5
90
107.5
110
76000
190
33000
82.5
43%
500
52000
7000
45000
14
90
104
90
95000
190
43000
86
45%
600
74000
7000
67000
11.67
111.67
123.33
220
114000
190
40000
66.67
35%
700
97000
7000
90000
10
128.57
138.57
230
133000
190
36000
51.43
27%
800
111000
7000
104000
8.75
130
138.75
140
152000
190
41000
51.25
27%
900
132000
7000
125000
7.78
138.89
146.67
210
171000
190
39000
43.33
23%
1000
152000
7000
145000
7
145
152
200
190000
190
38000
38
20%
AFC = total fixed cost/total output.
AVC = total variable cost/total output.
ATC = total cost/total output.
MC = change in total cost/change in output.
Total revenue = price * quantity. And given that the demand and supply intersect at $190, which implies that the equilibrium price is $190 because the point where the demand equals the supply determines the price.
MR = change in total revenue/change in output.
Profit = total revenue - total cost.
Average profit = total profit/total output.
Profit margin = total profit/total revenue*100 or (revenue - cost)/revenue*100.
Question:
What level of output should the manager of Redstone choose to produce? Explain your choice in 50-100 words.
Redstone Clayworks Inc. is located in Sedona, Arizona, and manufactures clay fire pits for patios. They are one of about two dozen firms around the world that manufacture and sell clay fire pits for retailers such as Home Depot, Lowe's, Front Gate, and other upscale home product chains. There is virtually no product differentiation. A clay fire pit is a clay fire pit.
The spreadsheet below gives some of Redstone's production cost data.
Assume that the world market demand and supply curves for clay fire pots intersect at $190 per unit.
Q |
TC |
TFC |
TVC |
AFC |
AVC |
ATC |
SMC |
TR |
MR |
Profit |
Average |
Profit |
Profit |
Margin |
|||||||||||
0 |
7000 |
7000 |
NIL |
NIL |
NIL |
NIL |
NIL |
0 |
NIL |
-7000 |
NIL |
nil |
100 |
14000 |
7000 |
7000 |
70 |
70 |
140 |
70 |
19000 |
190 |
5000 |
50 |
26% |
200 |
23000 |
7000 |
16000 |
35 |
80 |
115 |
90 |
38000 |
190 |
15000 |
75 |
39% |
300 |
32000 |
7000 |
25000 |
23.33 |
83.33 |
106.67 |
90 |
57000 |
190 |
25000 |
83.33 |
44% |
400 |
43000 |
7000 |
36000 |
17.5 |
90 |
107.5 |
110 |
76000 |
190 |
33000 |
82.5 |
43% |
500 |
52000 |
7000 |
45000 |
14 |
90 |
104 |
90 |
95000 |
190 |
43000 |
86 |
45% |
600 |
74000 |
7000 |
67000 |
11.67 |
111.67 |
123.33 |
220 |
114000 |
190 |
40000 |
66.67 |
35% |
700 |
97000 |
7000 |
90000 |
10 |
128.57 |
138.57 |
230 |
133000 |
190 |
36000 |
51.43 |
27% |
800 |
111000 |
7000 |
104000 |
8.75 |
130 |
138.75 |
140 |
152000 |
190 |
41000 |
51.25 |
27% |
900 |
132000 |
7000 |
125000 |
7.78 |
138.89 |
146.67 |
210 |
171000 |
190 |
39000 |
43.33 |
23% |
1000 |
152000 |
7000 |
145000 |
7 |
145 |
152 |
200 |
190000 |
190 |
38000 |
38 |
20% |
AFC = total fixed cost/total output.
AVC = total variable cost/total output.
ATC = total cost/total output.
MC = change in total cost/change in output.
Total revenue = price * quantity. And given that the demand and supply intersect at $190, which implies that the equilibrium price is $190 because the point where the demand equals the supply determines the price.
MR = change in total revenue/change in output.
Profit = total revenue - total cost.
Average profit = total profit/total output.
Profit margin = total profit/total revenue*100 or (revenue - cost)/revenue*100.
Question:
What level of output should the manager of Redstone choose to produce? Explain your choice in 50-100 words.