Question

In: Economics

The table given below reports the marginal revenue and marginal cost of the Fortune Travel Inc....

The table given below reports the marginal revenue and marginal cost of the Fortune Travel Inc. for each client. Table 12 Number of Clients Marginal Revenue Marginal Cost 1 100 $200 2 90 $100 3 80 $80 4 70 $40 5 60 $45 6 50 $50 7 40 $60 8 30 $70 9 20 $90 10 10 $120

In Table 12, assume that the total fixed cost of the Fortune Travel Inc. is zero. Compute the profit earned by the Fortune Travel Inc.with six clients. Show your work. (Show your work to earn credits. No Work, No Credit.)

Solutions

Expert Solution

The profit maximising Point of the Fortune Travel inc will be determined where its its marginal cost equsls the marginal Revenue.the marginal cost curve must cut MR curve from below.

The table below shows thr Profit Maximising output.

Number of clients

MR

$

MC

$

TC

Summation of MC

$

ATC

TC/Q

TR

AR

TR/Q

($)

profit

(TR-TC)

1 100 200 200 200 100 100 -100
2 90 100 300 150 190 95 -110
3 80 80 380 127 270 90 -110
4 70 40 420 105 340 85 -80
5 60 45 465 93 400 80 -65
6 50 50 515 86 450 75 -65(Minimum loss)
7 40 60 575 82 490 70 -85
8 30 70 645 81 520 65 -125
9 20 90 735 82 540 60 -195
10 10 120 855 85•5 550 55 -305

The above table shows the optimal number of clients =6

The minimum loss =$65 (TC-TR) at Equilibrium Point.

The below graph clarifies the situation -----

We observe the Equilibrium point E,where MC=MR anc cuts MR from below.The Optimal number of clients =6

The ATC corresponding to this point is $86 while AR =$75.

The area ABCD shows minimum loss to Fortune travel at 6. Umber o go clients. The loss is $65


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