In: Economics
Suppose that you produce and sell children's tables in a local market. Past experience enables you to estimate your demand and marginal cost schedules. This information is presented in the accompanying table.
Complete the following table by computing the total cost of producing each quantity. Then, compute the total revenue earned at each price level and the marginal revenue earned at each price level.
Price |
Quantity Demanded |
Fixed Cost |
Total Cost |
Marginal Cost |
Total Revenue |
Marginal Revenue |
---|---|---|---|---|---|---|
($ per table) |
(Tables per Week) |
($) |
($) |
($) |
($) |
($) |
40 | 1 | 40 | 65 | |||
5 | ||||||
35 | 2 | 40 | ||||
11 | ||||||
30 | 3 | 40 | ||||
18 | ||||||
25 | 4 | 40 | ||||
26 | ||||||
20 | 5 | 40 | ||||
35 | ||||||
15 | 6 | 40 | ||||
Assuming you are currently charging $25 per table set, what should you do if you want to increase profits?
Increase the price
Leave the price unchanged
Decrease the price
Given your demand and cost estimates, you should charge a price of if you want to maximize your weekly profit. At this price, your output will be
tables, and you will earn a weekly profit of
.
Ans:
Price ( $ per table) |
Quantity Demanded ( Tables per week) |
Fixed Cost ( $ ) |
Total Cost ( $ ) |
Marginal Cost ( $ ) |
Total Revenue ( $) |
Marginal Revenue ( $) |
40 | 1 | 40 | 65 | -- | 40 | -- |
35 | 2 | 40 | 70 | 5 | 70 | 30 |
30 | 3 | 40 | 81 | 11 | 90 | 20 |
25 | 4 | 40 | 99 | 18 | 100 | 10 |
20 | 5 | 40 | 125 | 26 | 100 | 0 |
15 | 6 | 40 | 160 | 35 | 90 | -10 |
Explanation:
Marginal cost = Change in total cost / change in quantity
Total revenue = Price * Quantity
Marginal Revenue = Change in total revenue / Change in Quantity
Ans: Assuming you are currently charging $25 per table set, you should increase the price if you want to increase profits.
Ans: Given your demand and cost estimates, you should charge a price of $30 if you want to maximize your weekly profit. At this price, your output will be 4 tables, and you will earn a weekly profit of $9.
Explanation:
Price ( $ per table) |
Quantity Demanded ( Tables per week) |
Fixed Cost ( $ ) |
Total Cost ( $ ) |
Marginal Cost ( $ ) |
Total Revenue ( $) |
Marginal Revenue ( $) |
Profit ( $) |
40 | 1 | 40 | 65 | -- | 40 | -- | -25 |
35 | 2 | 40 | 70 | 5 | 70 | 30 | 0 |
30 | 3 | 40 | 81 | 11 | 90 | 20 | 9 |
25 | 4 | 40 | 99 | 18 | 100 | 10 | 1 |
20 | 5 | 40 | 125 | 26 | 100 | 0 | -25 |
15 | 6 | 40 | 160 | 35 | 90 | -10 | -70 |
Profit = Total revenue - Total cost
Under monopolistic competition , the profit maximization condition is where MR = MC or MR > MC