Question

Julius builds dining chairs that he sells for $200 a chair. His fixed costs are $1,000 (for workshop equipment). Each chair costs him $50 in materials to produce plus an extra $25 for each previous chair made that day, which reflects Julius's increasing exhaustion. (Thus, the first chair cost $50, the second costs $75, the third cost $100, etc.) Assume time requirements in producing a chair are not a factor. How many chairs should Julius produce each day?

Answer 1

Answer:

7 chairs

Explanation:

The computation of the no of chairs that produced each day is shown below:

We know that

The optimum production is Marginal revenue = Marginal Cost

the Marginal cost is increasing with output and Marginal revenue  remains constant at $200

So,  

Quantity MC

1 50

2 75

3 100

4 125

5 150

6 175

7 200

Therefore Julius produce 7 chairs