Question

Update: Total cost is provided see below. We have to calculate Marginal Revenue numbers and others.

Please advise,

The chart below shows the demand curve for dog food at Charlie’s dog food factory and the total cost of producing various quantities:

Quantity	Price ($\lb)	Total Revenue	Marginal Revenue ($)	Total Cost	Marginal Cost	Profit
1	15			3
2	13			8
3	11			15
4	9			24
5	7			35
6	5			48

Fill in the rest of the chart.

b. How much dog food should Charlie sell, and what price should he charge? Answer first using Method I and then using Method II.

c. If Charlie is required to pay a $5 annual license fee to operate his dog food factory, what happens to his total cost numbers? What happens to his marginal cost numbers? What happens to the amount of dog food he sells and the price he charges?

d. If Charlie is required to pay an excise tax of $6 per pound of dog food, what happens to his total cost numbers? What happens to his marginal cost numbers? What happens to the amount of dog food he sells and the price he charges?

Answer 1

1)

Quantity	Price ($\lb)	Total Revenue	Marginal Revenue ($)	Total Cost	Marginal Cost	Profit
1	15	15		3		12
2	13	26	11	8	5	18
3	11	33	7	15	7	18
4	9	36	3	24	9	12
5	7	35	-1	35	11	0
6	5	30	-5	48	13	-18

2) The profit column reflects that Charlie maximizes the profit at $18; and generates this profit when sells either 2 pounds at $13 per pound or at 3 pounds at $11 per pound. When we make a comparison of the marginal revenue and the marginal cost column, we notice it to equal at 3 pounds of dog food. Thus the second method implies that Charlie need to sell 3 pounds of dog food at $11.

3) The total cost numbers of Charlie’s increase by $5. The profit numbers all decline by $5. Although the profits will remain positive except for large quantities of dog food. Charlie marginal cost will be constant. Thus it will be optimal for Charlie to sell 3 pounds of dog food at $11

4)

Quantity	Price ($\lb)	Total Revenue	Marginal Revenue ($)	Exercise Tax	Cost before	New cost	Marginal Cost	Profit
1	15	15		6	3	9		6
2	13	26	11	12	8	20	11	6
3	11	33	7	18	15	33	13	0
4	9	36	3	24	24	48	15	-12
5	7	35	-1	30	35	65	17	-30
6	5	30	-5	36	48	84	19	-54

Due to excise tax the marginal cost has increased by $6 each. Total cost has risen by $6 per pound. Thus in this scenario it is optimal for Charlie to sell 2 pounds of dog food at $13.