The El Dorado Star is the only newspaper in El Dorado, New Mexico. Certainly, the Star competes with The Wall Street Journal, USA Today, and the New York Times for national news reporting, but the Star offers readers stories of local interest, such as local news, weather, high-school sporting events, and so on. The El Dorado Star faces the demand and cost schedules shown in the spreadsheet that follows: (1) (2) (3) Number of newspapers per day (Q) P Total cost per day (TC) 0
Q. The El Dorado Star is the only newspaper in El Dorado, New Mexico. Certainly, the Star competes with The Wall Street Journal, USA Today, and the New York Times for national news reporting, but the Star offers readers stories of local interest, such as local news, weather, high-school sporting events, and so on. The El Dorado Star faces the demand and cost schedules shown in the spreadsheet that follows:
|
(1) |
(2) |
(3) |
|
Number of newspapers per day (Q) |
P |
Total cost per day (TC) |
|
0 |
0 |
2,000 |
|
1,000 |
$1.50 |
2,100 |
|
2,000 |
$1.25 |
2,200 |
|
3,000 |
$1.00 |
2,360 |
|
4,000 |
$0.85 |
2,520 |
|
5,000 |
$0.75 |
2,700 |
|
6,000 |
$0.65 |
2,890 |
|
7,000 |
$0.50 |
3,090 |
|
8,000 |
$0.35 |
3,310 |
|
9,000 |
$0.10 |
3,550 |
a. Create a spreadsheet using Microsoft Excel (or any other spreadsheet software) that matches the one above by entering the output, price, and cost data given.
b. Use the appropriate formulas to create three new columns (4, 5, and 6) in your spreadsheet for total revenue, marginal revenue (MR), and marginal cost (MC), respectively. [Computation check: At Q = 3,000, MR = $0.50 and MC = $0.16]. What price should the manager of the El Dorado Star charge? How many papers should be sold daily to maximize profit?
c. At the price and output level you answered in part b, is the El Dorado Star making the greatest possible amount of total revenue? Is this what you expected? Explain why or why not.
d. Use the appropriate formulas to create two new columns (7 and 8) for total profit and profit margin, respectively. What is the maximum profit the El Dorado Star can earn? What is the maximum possible profit margin? Are profit and profit margin maximized at the same point on demand?
e. What is the total fixed cost for the El Dorado Star? Create a new spreadsheet in which the total fixed cost increases to $5,000. What price should the manager charge? How many papers should be sold in the short run? What should the owners of the Star do in the long run?
Note: Please provide answers for (d and e).
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