MyJoe is a producer of coffee mugs. Its marginal costs are below:
| Quantity of Mugs | Marginal Cost |
| ------------------ | ------------- |
| 1 | 8.00 |
| 2 | 8.25 |
| 3 | 8.75 |
| 4 | 9.50 |
Suppose that the market price of coffee mugs is $9.50. What is MyJoe's profit-maximizing quantity?
Answer (2)
MyJoe's profit-maximizing quantity of coffee mugs is 4, as this is the point where the marginal cost equals the market price of $9.50. Producing less would mean missed profits, while producing more would incur higher costs than revenue. Therefore, the optimal production level is 4 mugs.
;
The profit-maximizing quantity is where marginal cost equals market price.
Identify the marginal cost for each quantity of mugs.
Find the quantity where the marginal cost is equal to the market price of $9.50.
The profit-maximizing quantity is 4 .
Explanation
Understanding the Problem We are given the marginal costs for producing coffee mugs and the market price of coffee mugs. We need to find the quantity of mugs that maximizes MyJoe's profit. The profit-maximizing quantity is the quantity at which the marginal cost equals the market price.
Identifying the Data We are given the following marginal costs for each quantity of mugs:
Quantity
Marginal Cost
1
$8.00
2
$8.25
3
$8.75
4
$9.50
The market price of coffee mugs is $9.50.
Finding the Profit-Maximizing Quantity We need to find the quantity at which the marginal cost equals the market price of $9.50. From the table, we can see that the marginal cost is equal to $9.50 when the quantity is 4 mugs.
Conclusion Therefore, MyJoe's profit-maximizing quantity is 4 mugs.
Examples
Understanding marginal cost and market price helps businesses determine the optimal production level to maximize profits. For example, a bakery can use this concept to decide how many cakes to bake each day. If the cost to bake one more cake (marginal cost) is higher than the price they can sell it for (market price), they should not bake that cake. Conversely, if the marginal cost is lower than the market price, they should bake more cakes to increase their profit. This principle applies to various industries, from manufacturing to service-based businesses, ensuring efficient resource allocation and profitability.
