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
Rahul Sunny answered 1 month agoRelated Solutions
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210
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