-Refer to Table 26.2.To maximize profit,Sylvie's Shampoo Company.should produce _______ bottles of shampoo and charge a price of _______ each.
A)6;$22
B)7;$20
C)8;$18

Question

-Refer to Table 26.2.To maximize profit,Sylvie's Shampoo Company.should produce _______ bottles of shampoo and charge a price of _______ each.
A)6;$22 
B)7;$20 
C)8;$18

Quizplus · Accepted Answer

To maximize profit, Sylvie's Shampoo Company should produce at the quantity where marginal revenue (MR) equals marginal cost (MC). Looking at Table 26.2, we can see that at 7 bottles of shampoo, both MR and MC equal $14. At any other quantity, either MR is less than MC or MC is less than MR. The corresponding price for 7 bottles is $20, which results in a total revenue of $140 (7 x $20). To calculate the total cost at this quantity, we add up the fixed cost and variable costs. At 7 bottles, the variable cost is $56 (7 x $8), and the total cost is $96 ($40 + $56). Therefore, the profit is $44 ($140 - $96). This is the highest profit that can be obtained at any quantity, so the best choice for Sylvie's Shampoo Company is to produce 7 bottles of shampoo and charge $20 for each bottle.