Profit Maximization

Gravis is Farnooks leading producer of hydroponic carrots. Due to Farnooks unique water characteristics, the only input affecting carrot production is water. Every other input can be considered fixed. Graviss production and cost data are provided below:

Table 1. Graviss Production (in tons) and Cost (in dollars) Data for Hydroponic Carrots.

Water Units	TPP	APP	MPP	TC	TFC	TVC	AFC	AVC	ATC	MC	MR
0	0	0	0	50	50	0	0	0	0	0	0
1	10	10	10	65	50	15	5	1.5	6.5	1.5	3.25
2	25	12.5	15	80	50	30	2	1.2	3.2	1	3.25
3	44	14.67	19	95	50	45	1.1	1.02	2.16	.79	3.25
4	60	15	16	110	50	60	.83	1	1.8	.94	3.25
5	70	14	10	125	50	75	.71	1.07	1.79	1.5	3.25
6	75	12.5	5	140	50	90	.67	1.2	1.87	3	3.25
7	79	11.2	4	155	50	105	.63	1.3	1.96	3.75	3.25
8	81	10.1	2	170	50	120	.62	1.48	2.1	7.5	3.25
9	82	9.1	1	185	50	135	.61	1.65	2.26	15	3.25

5. If price rises to $5.00/ ton, what is his profit maximizing level of output? Choose the output level that comes closest to satisfying our profit maximizing criteria. What are his profits (in dollars) in this situation? (5 points)

6. What are Graviss shut-down price and break-even price? (2 points)

7. Show AFC, AVC, ATC, MC and MRs in a graph and point out the shut-down price and break-even price levels on the graph. (5 points)