Question

Production and Pricing

The following data describe the monthly demand and monthly costs for a manufacturer of electronic components.

Complete the following cost and revenue schedules for this company.

Quantity of Boxes	Price per box	variable cost per box	fixed cost	total cost	average variable cost per box	average total cost per box	marginal cost per box	total revenue	marginal revenue per box
0			$     300	$     300				$0.00
1	$1,600	$ 1,281	$     300	$ 1,581	$1,281.00	$1,581.00	$ 1,281	$1,600	$ 1,600
2	$1,570	$ 2,268	$     300	$ 2,568	$1,134.00	$1,284.00	$ 1,000	$3,140	$ 1,540
3	$1,540	$ 3,027	$     300	$ 3,327	$1,009.00	$1,109.00	$    759	$4,620	$ 1,480
4	$1,490	$ 3,624	$     300	$ 3,924	$   906.00	$   981.00	$    597	$5,960	$ 1,340
5	$1,430	$ 4,125	$     300	$ 4,425	$   825.00	$   885.00	$    501	$7,150	$ 1,190
6	$1,350	$ 4,596	$     300	$ 4,896	$   766.00	$   816.00	$    471	$8,100	$    950
7	$1,270	$ 5,303	$     300	$ 5,603	$   757.57	$   800.43	$    707	$8,890	$    790
8	$1,190	$ 6,112	$     300	$ 6,412	$   764.00	$   801.50	$    809	$9,520	$    630
9	$1,090	$ 7,189	$     300	$ 7,489	$   798.78	$   832.11	$ 1,077	$9,810	$    290

Italic text is my own answers
Bold text is what was on original worksheet

*What is the profit maximizing (or loss minimizing) quantity of boxes that this company should supply?

*What price will the company charge? How is this price determined? Will this result in economic profits?

*If the company charged a higher price than what you found in (b) above, what would happen?

*What market structure do you think this company participates in?

Answer 1

Quantity of boxes[Q]	Price[P]	Variable cost[VC]	Fixed cost[FC]	Total cost =FC+VC	Average variable cost[AVC]= TC/Q	Average total cost[ATC]= TC/Q	Marginal cost[MC]= TC(n)-TC(n-1)	Total revenue[TR]=P*Q	Marginal revenue[MR]=TR[n]-TR[n-1]	Profit[TR-TC]
0	-	-	300.0	300.0	-	-	-	-	-	-
1	1,600.0	1,281.0	300.0	1,581.0	1,281.0	1,581.0	1,281.0	1,600.0	1,600.0	19.0
2	1,570.0	2,268.0	300.0	2,568.0	1,134.0	1,284.0	987.0	3,140.0	1,540.0	572.0
3	1,540.0	3,027.0	300.0	3,327.0	1,009.0	1,109.0	759.0	4,620.0	1,480.0	1,293.0
4	1,490.0	3,624.0	300.0	3,924.0	906.0	981.0	597.0	5,960.0	1,340.0	2,036.0
5	1,430.0	4,125.0	300.0	4,425.0	825.0	885.0	501.0	7,150.0	1,190.0	2,725.0
6	1,350.0	4,596.0	300.0	4,896.0	766.0	816.0	471.0	8,100.0	950.0	3,204.0
7	1,270.0	5,303.0	300.0	5,603.0	757.6	800.4	707.0	8,890.0	790.0	3,287.0
8	1,190.0	6,112.0	300.0	6,412.0	764.0	801.5	809.0	9,520.0	630.0	3,108.0
9	1,090.0	7,189.0	300.0	7,489.0	798.8	832.1	1,077.0	9,810.0	290.0	2,321.0

[b] Profit is maximized where MR=MC which is at quantity =7[by approximation] .

Therefore, profit is maximized at 7 boxes.

[c] At profit maximization point, price at 7 boxes is 1270 and the mention profit against the 7 boxes is 3287.

[d] If the company charges higher price then the equilibrium price, by this demand will start falling as at the increased prices consumer will demand less but the cost will be same, therefore the profit = TR- TC will start falling as TR decreased but TC is same so the profit is decreasing.

[e] Here the demand have negative relationship with price thus demand is downard sloping and marginal cost once fall reaches at lowest and then again started rising thus forming U-shaped which refers the market is perfectly competitive market.