Suppose a firm that produces pints of gourmet ice cream has monthly fixed costs of $12,000. The variable costs come to $1.50 per pint produced. (for up to 40,000 pints/month) and the firm sells each pint of ice cream for $3. Find the firm's profit function.

$48,000

Explanation:

The Profit function shows the relationship between the total costs and total revenue accrued in a business. It is given by the formula;

Product Function=Total revenue - Total costs.

The fixed costs in a business are those expenses that must be taken care of no matter the level of production. Variable costs however are dependent on the output of the company.

For the firm producing Gourmet ice-cream,

Total Revenue= $3*40000 pints/month = $120,000

Total costs=Fixed cost +Variable costs

= $12,000 + $40000*(1.5)

= $12,000 + $60,000

= $72000

Therefore,

Product Function= $120,000 - $72000

= $48000

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