Answer:
The extra profit earned is $10,000
Explanation:
First, let us lay out the information given;
number of fish caught = 20,000
total variable cost = $5,000
average fixed cost = $1
total fixed cost = average fixed cost × number of fishes
= 20,000 × 1 = $20,000
Total cost = 20,000 + 5,000 = $25,000
Next let us calculate the total amount realized from sales before the price jump;
market price = $3
Total amount from sales = 3 × 20,000 = $60,000
profit made = selling price - cost price
= 60,000 - 25,000 = $35,000
Next let us calculate amount realized after the price jump;
new market price = $3.50
Total amount from new sales = 3.50 × 20,000 = $70,000
Profit = sales revenue - cost = 70,000 - 25,000 = 45,000
Finally to calculate the extra profit made, we will find the difference between new profit after price jump and the first profit made;
extra profit = new profit - old profit
= 45,000 - 35,000 = $10,000
