Subpart (a):
Calculate total revenue and marginal revenue.
Subpart (a):
Explanation of Solution
Table – 1 shows the schedule of market
Table – 1
| Quantity |
24 | 10,000 |
22 | 20,000 |
20 | 30,000 |
18 | 40,000 |
16 | 50,000 |
14 | 60,000 |
Total revenue is calculated using the following formula:
Substitute the respective values in Equation (1) to calculate the total revenue at quantity of 10,000 units.
Thus, total revenue is $240,000.
Marginal Revenue is calculated using the following formula:
Substitute the respective values in Equation (2) to calculate the marginal revenue at the output level of 20,000 units.
Thus, the marginal revenue is $20.
Table – 2 shows the calculation of Total Revenue and Marginal Revenue obtained by using Equations (1) and (2).
Table – 2
Price | Quantity | Total Revenue | Marginal Revenue |
24 | 10,000 | 240,000 | - |
22 | 20,000 | 440,000 | 20 |
20 | 30,000 | 600,000 | 16 |
18 | 40,000 | 720,000 | 12 |
16 | 50,000 | 800,000 | 8 |
14 | 60,000 | 840,000 | 4 |
Concept introduction:
Total revenue: Total revenue is derived by multiplying the price with total quantity sold.
Marginal revenue: Marginal revenue is the additional revenue generated due to sale of one unit of output.
Subpart (b):
Total cost and marginal cost.
Subpart (b):
Explanation of Solution
Total cost is calculated using the following formula:
Substitute the respective values in Equation (3) to calculate the total cost at 10,000 units of output. Since, the firm has only variable cost, the cost is $5.
Total cost is $50,000.
Thus, the total cost is $50,000.
Marginal Cost is calculated using the following formula:
Substitute the respective values in Equation (4) to calculate the marginal cost.
Thus, the marginal cost is $20.
Profit is calculated using the following formula:
Substitute the respective values in Equation (4) to calculate the profit at 10,000 units.
Thus, the profit is $190,000.
Table -3 shows the Total Cost and Profit obtained by using Equations (3) and (4).
Table -3
Price | Quantity | Total Revenue | Marginal Revenue | Total Cost | Marginal Cost | Profit |
24 | 10,000 | 240,000 | - | 50,000 | - | 190,000 |
22 | 20,000 | 440,000 | 20 | 100,000 | 5 | 340,000 |
20 | 30,000 | 600,000 | 16 | 150,000 | 5 | 450,000 |
18 | 40,000 | 720,000 | 12 | 200,000 | 5 | 520,000 |
16 | 50,000 | 800,000 | 8 | 250,000 | 5 | 550,000 |
14 | 60,000 | 840,000 | 4 | 300,000 | 5 | 540,000 |
A firm can achieve profit maximizing condition at the point where the marginal revenue equal to the marginal cost. Thus, from Table – 3, the quantity at which MC is closest to MR without exceeding it is 50,000 CDs at a price of $16, where the profit is $550,000.
Concept introduction:
Total cost: Total cost refers to the cost of all the inputs used by the firm. It includes both the fixed cost and the variable costs.
Marginal cost: Marginal cost is the additional cost incurred due to sale of one unit of output.
Subpart (c):
Recommended quantity.
Subpart (c):
Explanation of Solution
As Johnny's agent, the fee recommends that he demand $550,000 because all the profit generated by the firm will be received by the agents. The firm would not change the output to produce 50,000 CDs because the payment of agent’s fees does not change the marginal cost.
Want to see more full solutions like this?
Chapter 15 Solutions
EBK STUDY GUIDE FOR MANKIW'S PRINCIPLES
- al Problems (v) T (ix) F 1. Out of total number of 2807 women, who were interviewed for employment in a textile factory, 912 were from textile areas and the rest from non-textile areas. Amongst the married women, who belonged to textile areas, 347 were having some work experience and 173 did not have work experience, while for non-textile areas the corresponding figures were 199 and 670 respectively. The total number of women having no experience was 1841 of whom 311 resided in textile areas. Of the total number of women, 1418 were unmarried and of these the number of women having experience in the textile and non-textile areas was 254 and 166 respectively. Tabulate the above information. [CA. (Foundation), May 2000 Exactly (14) of the total employees of a sugar mill were these were married and one-halfarrow_forwardHow did Jennifer Lopez use free enterprise to become successful ?arrow_forwardAn actuary analyzes a company’s annual personal auto claims, M and annual commercialauto claims, N . The analysis reveals that V ar(M ) = 1600, V ar(N ) = 900, and thecorrelation between M and N is ρ = 0.64. Compute V ar(M + N ).arrow_forward
- Don't used hand raitingarrow_forwardAnswer in step by step with explanation. Don't use Ai.arrow_forwardUse the figure below to answer the following question. Let I represent Income when healthy, let I represent income when ill. Let E [I] represent expected income for a given probability (p) of falling ill. Utility у в ULI income Is есте IM The actuarially fair & partial contract is represented by Point X × OB A Yarrow_forward
- Suppose that there is a 25% chance Riju is injured and earns $180,000, and a 75% chance she stays healthy and will earn $900,000. Suppose further that her utility function is the following: U = (Income) ³. Riju's utility if she earns $180,000 is _ and her utility if she earns $900,000 is. X 56.46; 169.38 56.46; 96.55 96.55; 56.46 40.00; 200.00 169.38; 56.46arrow_forwardUse the figure below to answer the following question. Let là represent Income when healthy, let Is represent income when ill. Let E[I], represent expected income for a given probability (p) of falling ill. Utility & B естве IH S Point D represents ☑ actuarially fair & full contract actuarially fair & partial contract O actuarially unfair & full contract uninsurance incomearrow_forwardSuppose that there is a 25% chance Riju is injured and earns $180,000, and a 75% chance she stays healthy and will earn $900,000. Suppose further that her utility function is the following: U = (Income). Riju is risk. She will prefer (given the same expected income). averse; no insurance to actuarially fair and full insurance lover; actuarially fair and full insurance to no insurance averse; actuarially fair and full insurance to no insurance neutral; he will be indifferent between actuarially fair and full insurance to no insurance lover; no insurance to actuarially fair and full insurancearrow_forward
- 19. (20 points in total) Suppose that the market demand curve is p = 80 - 8Qd, where p is the price per unit and Qd is the number of units demanded per week, and the market supply curve is p = 5+7Qs, where Q5 is the quantity supplied per week. a. b. C. d. e. Calculate the equilibrium price and quantity for a competitive market in which there is no market failure. Draw a diagram that includes the demand and supply curves, the values of the vertical- axis intercepts, and the competitive equilibrium quantity and price. Label the curves, axes and areas. Calculate both the marginal willingness to pay and the total willingness to pay for the equilibrium quantity. Calculate both the marginal cost of the equilibrium quantity and variable cost of producing the equilibrium quantity. Calculate the total surplus. How is the value of total surplus related to your calculations in parts c and d?arrow_forwardPlease answer all parts of the questionarrow_forwardDon't use ai to answer I will report you answerarrow_forward
- Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage LearningEconomics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
- Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc