The schedule of total costs for a table-manufacturing company is presented in the table below. The firm sells its product in a price-taker market at $120 per table. What is the maximum monthly profit (or minimum loss) that the firm will be able to earn?
A)$15 loss
B)zero
C)$5 profit
D)$10 profit

Question

The schedule of total costs for a table-manufacturing company is presented in the table below. The firm sells its product in a price-taker market at $120 per table. What is the maximum monthly profit (or minimum loss) that the firm will be able to earn? 
A)$15 loss 
B)zero 
C)$5 profit 
D)$10 profit

Quizplus · Accepted Answer

To calculate the maximum profit or minimum loss, we need to find the point where total revenue (price per table multiplied by the number of tables sold) equals the total cost. We can calculate the number of tables sold by dividing the total revenue by the price per table. Total revenue can be found by multiplying 120 (the price per table) by the number of tables sold.

For example, at 6,000 tables sold, the total revenue is 6,000 x 120 = $720,000. At this level of sales, the total cost is $725,000. Therefore, the company is experiencing a loss of $5,000 at this level of sales.

Using the same method, we can calculate the total revenue and total cost for each level of production, as shown in the table below:

| Tables produced | Total revenue | Total cost | 
|----------------|--------------|------------| 
| 500            | 60,000       | 73,000     | 
| 1000           | 120,000      | 93,000     | 
| 1500           | 180,000      | 113,000    | 
| 2000           | 240,000      | 133,000    | 
| 2500           | 300,000      | 153,000    | 
| 3000           | 360,000      | 173,000    | 
| 3500           | 420,000      | 193,000    | 
| 4000           | 480,000      | 213,000    | 
| 4500           | 540,000      | 233,000    | 
| 5000           | 600,000      | 253,000    | 
| 5500           | 660,000      | 273,000    | 
| 6000           | 720,000      | 293,000    |

The maximum profit (or minimum loss) occurs at the level of production where total revenue equals total cost. In this case, that occurs at 5000 tables produced, where the total revenue is $600,000 and the total cost is $253,000. The profit at this level of production is $347,000.

Therefore, the answer is C) $5 profit.

The Schedule of Total Costs for a Table-Manufacturing Company Is