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# Presto Products, Inc., manufactures small electrical appliances and has recently introduced an innovative new dessert maker for frozen yogurt and...

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Presto Products, Inc., manufactures small electrical appliances and has recently
introduced an innovative new dessert maker for frozen yogurt and fruit smoothies that
has the clear potential to offset the weak pricing and sluggish volume growth experienced
during recent periods. Monthly demand cost relations for Presto's frozen dessert maker are as follows: P = \$60 — \$0.005Q TC = \$100,000 + \$50 + \$0000502
MR = ATR/AQ = \$60 - \$0.01Q
MC = ATC/AQ = \$5 + \$0.001Q A. Set up a table or spreadsheet for Presto output (Q), price (P), total revenue (TR),
marginal revenue (MR), total cost (TC), marginal cost (MC), total proﬁt (7:), and marginal
proﬁt (M15). Establish a range for Q from 0 to 10,000 in increments of 1,000 (i.e., 0, 1,000,
2,000, ..., 10,000). B. Using the Presto table or spreadsheet, create a graph with TR, TC, and 1: as dependent
variables, and units of output (Q) as the independent variable. At what price/output
combination is total proﬁt maximized? Why? At what price/output combination is total
revenue maximized? Why? C. Determine these proﬁt—maximizing and revenue—maximizing price/output combinations
analytically. In other words, use Presto's proﬁt and revenue equations to conﬁrm your
answers to part B. D. Compare the proﬁt—maximizing and revenue—maximizing price/output combinations,
and discuss any differences. When will short—run revenue maximization lead to long—run
proﬁt maximization?

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