Question
In: Economics
The blue curve on the following graph represents the demand curve facing a firm that can set its own prices.
The blue curve on the following graph represents the demand curve facing a firm that can set its own prices.
Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
On the graph input tool, change the number found in the Quantity Demanded field to determine the prices that correspond to the production of 0, 8, 16, 20, 24, 32, and 40 units of output. Calculate the total revenue for each of these production levels. Then, on the following graph, use the green points (triangle symbol) to plot the results.
Calculate the total revenue if the firm produces 8 versus 7 units. Then, calculate the marginal revenue of the eighth unit produced. The marginal revenue of the eighth unit produced is $125
Calculate the total revenue if the firm produces 16 versus 15 units. Then, calculate the marginal revenue of the 16th unit produced.
The marginal revenue of the 16th unit produced is $45
Based on your answers from the previous question, and assuming that the marginal revenue curve is a straight line, use the black line (plus symbol) to plot the firm's marginal revenue curve on the following graph. (Round all values to the nearest increment of 40.)
Comparing your total revenue graph to your marginal revenue graph, you can see that when total revenue is decreasing, marginal revenue is negative.
Solutions
Expert Solution
Inverse Demand Function is
P = 200 - 5Q
When Q = 8, Price = 200 - 5*8 = $ 160
Total Revenue = 8*160 = $ 1280
When Q = 7 , Price = 200 - 5*7 = $ 165
Total Revenue = 7*165 = $ 1155
Marginal Revenue
Now, When Q = 16, P = 200 - 5*16 = $ 120
TR = 16*120 = $ 1920
When Q = 15, P = 200 - 5*15 = $ 125
TR = 15*125 = $ 1875
Marginal Revenue
When Total Revenue is Decreasing the Marginal Revenue is Negative.
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Rahul Sunny answered 2 years agoRelated Solutions
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