Calculating the Bakery's Profit Using Producer Surplus

A small artisanal coffee roaster operates in a market where it is a price-taker, selling each bag of coffee for a market price of $15. The roaster's marginal cost to produce a bag is $11 for any quantity up to 100 bags per day. Due to capacity constraints, if production exceeds 100 bags, the marginal cost for every additional bag beyond the 100th jumps to $17. What is the profit-maximizing quantity of coffee bags for the roaster to produce each day?

Profit Maximization with Stepped Costs

Production Decision for a Solar Panel Manufacturer

A t-shirt printing company is a price-taker and sells each shirt for $18. The marginal cost to produce a shirt is $14 for any quantity up to 200 shirts. Due to needing to run an extra shift, the marginal cost for any shirt produced beyond the 200th jumps to $20. Given this, the company should not produce at all because the market price of $18 never exactly equals its marginal cost.

A price-taking firm produces custom-molded plastic parts. The marginal cost is $40 per part for any quantity up to 5,000 parts per month. If production exceeds 5,000 parts, the firm must run an overtime shift, and the marginal cost for each additional part jumps to $55. The firm has determined that its profit-maximizing output level is exactly 5,000 parts per month. Based on this information, which of the following statements about the market price (P) per part must be true?

A price-taking firm manufactures a standard component. The marginal cost to produce each component is $50 for any quantity up to 500 units per day. If production exceeds 500 units, the marginal cost for each additional unit rises to $70. The current market price for the component is $62. The firm correctly decides that its profit-maximizing output is exactly 500 units per day. Which of the following statements best explains the economic reasoning for this decision?

Evaluating a Production Increase

Deducing Market Price from Production Decisions

A price-taking firm manufactures widgets. The marginal cost to produce a widget is $8 for any quantity up to 500 widgets per day. If production exceeds 500 widgets, the marginal cost for each additional widget jumps to $12. Match each possible market price with the firm's profit-maximizing production decision.

Evaluating a Marginal Production Decision

Production Decision for a Solar Panel Manufacturer

A t-shirt printing company is a price-taker and sells each shirt for $18. The marginal cost to produce a shirt is $14 for any quantity up to 200 shirts. Due to needing to run an extra shift, the marginal cost for any shirt produced beyond the 200th jumps to $20. Given this, the company should not produce at all because the market price of $18 never exactly equals its marginal cost.