Answered: Pharmed Caplets is an antibiotic…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Pharmed Caplets is an antibiotic product with monthly revenues and

Pharmed Caplets is an antibiotic product with monthly revenues and costs of:
TR = $900Q – $0.1Q2 ………… TC = $36,000 + $200Q + $0.4Q2
MR = ∂TR/∂Q = $900 – $0.2Q ……. MC = ∂TC/∂Q = $200 + $0.8Q
A. Set up a spreadsheet for output (Q), price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), average cost (AC), total profit (π), and marginal profit (Mπ). Establish a range for Q from 0 to 1,000 in increments of 100 (i.e., 0, 100, 200, …, 1,000).
B. Using the spreadsheet to, create a graph with MR, MC, and AC 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 average cost minimized? Why?
C. Determine these profit-maximizing and average-cost minimizing price/output combinations analytically. In other words, use revenue and cost equations to confirm your answers to part B.
D. Compare the profit-maximizing and average-cost minimizing price/output combinations, and discuss any differences. When will average-cost minimization lead to long-run profit maximization?

Pharmed Caplets is an antibiotic product with monthly revenues and

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