Question

Quantity	TFC	TVC	TC	Total Revenue P = $136	Total Profit (+) or Loss (-)	AVC	ATC	MC	MR = P	Total Revenue P = $106	Total Profit (+) or Loss (-)	Total Revenue P = $100	Total Profit (+) or Loss (-)
0		$0.00
1		$90.00
2		$170.00
3		$240.00
4		$300.00
5		$370.00
6		$450.00
7		$540.00
8		$650.00
9		$785.00
10		$945.00

Scooter the Skater has obtained the right to make and sell custom
rollerblades on the boardwalk this summer.
Scooter signed a lease for a store on the boardwalk for $200 per week.
a) Given Scooter's estimates for the number of pairs of rollerblades he thinks
he may sell per week (First column above) and the labor and materials costs
shown for each quantity of rollerblades produced (third column above),
complete the the table by filling in columns B, D, E, F, G, H, I and J.
Assume rollerblades sell for $136 per pair.
b) If Scooter sells rollerblades for $136 per pair, what is the most profitable
quantity of pairs to sell per week? Why?
c) What is Scooter's profit at that sales level?
d) If Scooter makes and sells 7 pairs per week at a price of $106 per pair, will he make a normal profit?
Will he make an economic profit? If so, how much? (i.e., complete columns K and L)
e) If this were a highly competitive market, and rollerblades were a homogenious good,
how many pairs of rollerblades would each competitor sell per week?
What would be the market price per pair? Why?
f) If Scooter can only charge $100 per pair, should he produce and sell any rollerblades?
Why or why not? If so, how many pairs? Show your work in the last two columns.
Below what price would the producer deci

Answer 1

A.

Quantity	TFC	TVC	TC	Total Revenue P = $136	Total Profit (+) or Loss (-)	AVC	ATC	MC	MR = P	Total Revenue P = $106	Total Profit (+) or Loss (-)	Total Revenue P = $100	Total Profit (+) or Loss (-)
0	$200.00	$0.00	$200.00	$0.00	-$200.00				$0.00	$0.00	-$200.00	$0.00	-$200.00
1	$200.00	$90.00	$290.00	$136.00	-$154.00	$90.00	$290.00	$90.00	$136.00	$106.00	-$184.00	$100.00	-$190.00
2	$200.00	$170.00	$370.00	$272.00	-$98.00	$85.00	$185.00	$80.00	$136.00	$212.00	-$158.00	$200.00	-$170.00
3	$200.00	$240.00	$440.00	$408.00	-$32.00	$80.00	$146.67	$70.00	$136.00	$318.00	-$122.00	$300.00	-$140.00
4	$200.00	$300.00	$500.00	$544.00	$44.00	$75.00	$125.00	$60.00	$136.00	$424.00	-$76.00	$400.00	-$100.00
5	$200.00	$370.00	$570.00	$680.00	$110.00	$74.00	$114.00	$70.00	$136.00	$530.00	-$40.00	$500.00	-$70.00
6	$200.00	$450.00	$650.00	$816.00	$166.00	$75.00	$108.33	$80.00	$136.00	$636.00	-$14.00	$600.00	-$50.00
7	$200.00	$540.00	$740.00	$952.00	$212.00	$77.14	$105.71	$90.00	$136.00	$742.00	$2.00	$700.00	-$40.00
8	$200.00	$650.00	$850.00	$1,088.00	$238.00	$81.25	$106.25	$110.00	$136.00	$848.00	-$2.00	$800.00	-$50.00
9	$200.00	$785.00	$985.00	$1,224.00	$239.00	$87.22	$109.44	$135.00	$136.00	$954.00	-$31.00	$900.00	-$85.00
10	$200.00	$945.00	$1,145.00	$1,360.00	$215.00	$94.50	$114.50	$160.00	$136.00	$1,060.00	-$85.00	$1,000.00	-$145.00

B.

When the price of the rollerblade is $136 per pair.

It will be 9 pair of rollerblades to be produced that will give the highest level of profit. It will happen, because at this level, MC is lower than the marginal benefit. Once the output is increased from 9 to 10 pair, there is MC that is greater than MB. So, 9 pair is the profit maximizing output at $136 price.

C.

Profit = total revenue – total cost = 136*9 – 985 = $239

D.

When 7 pairs of rollerblades is sold at a price of $106 per pair.

Profit = 7*106 – 740 = $2

So, there will be profit at this level of output and price combination.

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