Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Question
Chapter 14, Problem 14.3P
a)
To determine
To find: The calculation of profit,
b)
To determine
To find: The calculation of profit, price, and quantity.
c)
To determine
To find: The calculation of profit, price, and quantity.
d)
To determine
To find: The graph showing the different situations.
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A friend has just started up her own business. Her firm asks you how much to charge for her product to maximize profits. The demand schedule for it is given by the first two columns in the table below; its total costs are given in the third column. For each level of output, you can calculate total revenue, marginal revenue, average cost, and marginal cost. The profit-maximizing level of output can be found at the point where TR - TC is greatest, or where MR = MC, (or the last quantity where MR is still greater than MC.)
What is the profit-maximizing level of output for her product? 40
How much will she earn in profits? 80
Price Quantity TC TR? MR? MC?
$25.00 0 $130
$24.00 10 $275
$23.00 20 $435
$22.50 30 $610
$22.00 40 $800
$21.60 50 $1,005
$21.20 60 $1,225
Jabari's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Jabari initially produced five trucks, but then
decided to increase production to six trucks. The following graph gives the demand curve faced by Jabari's HookNLadder. As the graph shows, in order
to sell the additional fire truck, Jabari must lower the price from $160,000 to $120,000 per truck. Notice that Jabari gains revenue from the sale of the
additional engine, but at the same time, he loses revenue from the initial five engines because they are all sold at the lower price.
Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial five engines by selling at $120,000 rather
than $160,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine
at $120,000.
PRICE (Thousands of dollars per fire engine)
220
200
180
160
140
120
100
80
60
40
20
Jabari
0
0 1 2 3…
Jabari's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Jabari initially produced five trucks, but then
decided to increase production to six trucks. The following graph gives the demand curve faced by Jabari's HookNLadder. As the graph shows, in order
to sell the additional fire truck, Jabari must lower the price from $160,000 to $120,000 per truck. Notice that Jabari gains revenue from the sale of the
additional engine, but at the same time, he loses revenue from the initial five engines because they are all sold at the lower price.
Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial five engines by selling at $120,000 rather
than $160,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine
at $120,000.
PRICE (Thousands of dollars per fire engine)
220
200
180
160
140
120
100
80
60
40
0
Jabari
0
+
1
True…
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