A small company that builds wooden fences can currently construct five fences per month for a total revenue of $5,000 and a total cost of $750. One month, the firm owner decides to invest in more equipment. This extra equipment allows the company to build a sixth fence per month, but raises total cost to $825. Assuming the firm charges the same price for the sixth fence as it did for each of the other five, what is the change in total profit that results from increasing output?

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amcool amcool · Answer 1 · 2020-06-10T12:10:24+02:00

Answer:

$925

Explanation:

Initial number of fences = 5

Initial total revenue = $5,000

Initial total cost = $750

Initial total profit = Initial total revenue - Initial total cost = $5,000 - $750 = $4,250

Since the firm charges the same price for the sixth fence as it did for each of the other five, we have:

Price per unit = Initial total revenue / Initial total cost = $5,000 / 5 = $1,000

New number of fences = 6

New total revenue = Price per unit * New number of fences = $1,000 * 6= $6,000

New total profit = $6,000 - $825 = $5,175

Change in total profit = New total profit - Initial total profit = $5,175 - $4,250 = $925.

Therefore, the change in total profit that results from increasing output is $925.