Question

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.)

Answer 1

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