Question

price	quantity	TR	MR	TFC	TVC	TC	MC	ATC	AVC	Profit
$2.50	0
$2.25	100
$2.00	200
$1.75	300
$1.50	400
$1.25	500
$1.00	600
$.75	700
$.50	800

Paula's Pralines produces pralines in a highly, but not perfectly, competitive market. Paula rents her commercial kitchen for $150/day. Each 100 pralines costs Paula $65 for ingredients and one hour of labor. Paula pays her workers $10/hour. Demand for Paula's Pralines is given in the demand schedule below.

1. Fill in a table like the one below showing Paula's costs and revenues for one day. Included the values given for price and quantity, as well as total revenue (TR), marginal revenue (MR), total fixed cost (TFC), total variable costs (TVC), total cost (TC), marginal cost (MR), average total cost (ATC), and average variable cost (AVC), and profit.
2. Graph Paula's demand, MR, MC, ATC, and AVC curves. Indicate on your graph Paula's profit-maximizing price and quantity.
3. Write an analysis of Paula's firm, including the answers to the following questions, remembering to craft your response as a paper rather than as the answers to a series of short answer questions.
   • Identify Paula's fixed and variable expenses.
   • Explain what happens to ATC and AC as output increases and why this happens.
   • Explain what happens to MR as output increases and why this happens.
   • Explain how you determined the profit-maximizing price and quantity.
   • Illustrate why this is profit-maximizing by explaining what would happen if Paula tries to raise or lower her price while still producing the same quantity.
   • What is most likely to happen in the handmade candy market in this town?
4. Paula's town is growing rapidly and a shortage of spaces to rent develops, so Paula's landlord, like most in town, doubles her rent.
   • Complete a new table of costs with the rent now $300/day. (Hint: Copy and paste your table from #3, then change only the numbers which will be different now.)
   • At what price and quantity should Paula operate now? What are the long-run implications for Paula's business?
5. Because of the increase in rents, the city decides to implement a minimum wage of $15/hour.
   • Complete a new table of costs with the cost of labor now $15/hour.
   • At what price and quantity should Paula operate now? What are the long-run implications for Paula's business?
   • What will probably be happening in the industry now?

-I need help finishing the graph above

Answer 1

The equilibrium price and quantity are determined at a point where marginal revenue equals the marginal cost. This happens when MC curve intersects the MR curve. The quantity at this point is 400 units and price is $1.50. The profits firm earn at this point is $150.

P	Q	TR	MR	TFC	TVC	TC	MC	ATC	AVC	Profits
2.50	0	0		150	0.0	150.0				-150.0
2.25	100	225	2.25	150	75.0	225.0	0.75	2.25	0.75	0.0
2.00	200	400	1.75	150	150.0	300.0	0.75	1.50	0.75	100.0
1.75	300	525	1.25	150	225.0	375.0	0.75	1.25	0.75	150.0
1.50	400	600	0.75	150	300.0	450.0	0.75	1.13	0.75	150.0
1.25	500	625	0.25	150	375.0	525.0	0.75	1.05	0.75	100.0
1.00	600	600	-0.25	150	450.0	600.0	0.75	1.00	0.75	0.0
0.75	700	525	-0.75	150	525.0	675.0	0.75	0.96	0.75	-150.0
0.50	800	400	-1.25	150	600.0	750.0	0.75	0.94	0.75	-350.0