John keeps beehives and sells 100 quarts of honey per month. The honey market is perfectly competitive, and the price of a quart of honey is $10. John has an average variable cost of $5 and an average fixed cost of $3
At 100 quarts per month, John's marginal cost is $10.
a) Is John maximizing his profit? If not, what should John do?
b) Calculate John's total revenue, total cost, and total economic profit or economic loss when he produces 100 quarts of honey.
a) Yes, John is maximizing his profit because marginal revenue (price) equals marginal cost.
b) Total revenue equals price times quantity = $10 × 100 = $1,000.
Total cost equals average total cost times quantity = ($5 + $3 ) × 100 = $800.
Economic profit equals total revenue minus total cost = $1,000 - $800 = $200.
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