V.A producer faces the following demand schedule for the next medicine from one of its popular researchers: Price Quantity Demanded $100 O boxes 90 100,000 80 200,000 300,000 400,000 70 60 50 500,000 40 600,000 30 700,000 20 800,000 10 900,000 1,000,000 The researcher is paid $2 million to development of new medicine, and the marginal cost of producing new medicine is a constant $10 per box. a. Compute total revenue, total cost, and profit at each quantity. What quantity would a profit maximizing producer choose? What price would it charge? b. Compute marginal revenue. (Recall that MR = A TR/A Q.) How does marginal revenue compare to the price? Explain. c. Graph the marginal-revenue, marginal-cost, and demand curves. At what quantity do the marginal revenue and marginal-cost curves cross? What does this signify? d. In your graph, shade in the deadweight loss. Explain in words what this means. e. If the researcher were paid $3 million instead of $2 million, how would this affect the producer’ s decision regarding what price to charge? Explain. f. Suppose the producer was not profit-maximizing but was concemed with maximizing economic efficiency. What price would it charge for the medicine? How much profit would it make at this price?
V.A producer faces the following demand schedule for the next medicine from one of its popular researchers: Price Quantity Demanded $100 O boxes 90 100,000 80 200,000 300,000 400,000 70 60 50 500,000 40 600,000 30 700,000 20 800,000 10 900,000 1,000,000 The researcher is paid $2 million to development of new medicine, and the marginal cost of producing new medicine is a constant $10 per box. a. Compute total revenue, total cost, and profit at each quantity. What quantity would a profit maximizing producer choose? What price would it charge? b. Compute marginal revenue. (Recall that MR = A TR/A Q.) How does marginal revenue compare to the price? Explain. c. Graph the marginal-revenue, marginal-cost, and demand curves. At what quantity do the marginal revenue and marginal-cost curves cross? What does this signify? d. In your graph, shade in the deadweight loss. Explain in words what this means. e. If the researcher were paid $3 million instead of $2 million, how would this affect the producer’ s decision regarding what price to charge? Explain. f. Suppose the producer was not profit-maximizing but was concemed with maximizing economic efficiency. What price would it charge for the medicine? How much profit would it make at this price?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:V.A producer faces the following demand schedule for the next medicine from one of its popular
researchers:
Quantity Demanded
O boxes
Price
$100
90
100,000
80
200,000
70
300,000
60
400,000
50
500,000
40
600,000
30
700,000
20
800,000
10
900,000
1,000,000
The researcher is paid $2 million to development of new medicine, and the marginal cost of
producing new medicine is a constant $10 per box.
a. Compute total revenue, total cost, and profit at each quantity. What quantity would a profit
maximizing producer choose? What price would it charge?
b. Compute marginal revenue. (Recall that MR =A TR/A Q.) How does marginal revenue
compare to the price? Explain.
c. Graph the marginal-revenue, marginal-cost, and demand curves. At what quantity do the
marginal revenue and marginal-cost curves cross? What does this signify?
d. In your graph, shade in the deadweight loss. Explain in words what this means.
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e. If the researcher were paid $3 million instead of $2 million, how would this affect the
producer' s decision regarding what price to charge? Explain.
f. Suppose the producer was not profit-maximizing but was concemed with maximizing
economic efficiency. What price would it charge for the medicine? How much profit would it
make at this price?
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