3. (Revenue Management) Berkeley Bed and Breakfast has 12 rooms, the room price is $200 per night, the marginal cost of cleaning, etc., for having a room occupied is $30, and it costs the B&B $100 to turn away customers who have reservations. Customers with reservations have a 5% chance of canceling, without penalty. Assume there are no walk-ins (all customers reserve in advance). How many reservations should be accepted to maximize the expected profit? (Hint: This will require a little bit of trial and error, and this is not a newsvendor problem.)

Let R(x), C(x), and P(x) be, respectively, the revenue, cost, and profit, in dollars, from the production and sales of x items. If R(x) = 6x and C(x) = 0.004x^2+2.7x+70, find each of the following:

a) P(x) =

b) R(150), C(150), and P(150)

c)R'(x), C'(x), P'(x)

d) R'(150), C'(150), and P'(150)

1. A business invests $5000 and initially plans to achieve annual revenue of $1100/YEAR with $200/YEAR expenses (starting at the end of year 1) for ten years. No market value if used for 10 years.

Part A:

Draw a before tax cash flow diagram of the ten-year plan

Part B:

If at the end of year 6, the investment is sold for $1000, calculate the PW, FW, and AW for the before tax cash flow MARR of 12%. Is the investment worth it? And why ?

Part C:

If the investment was used for ten years with no market value, what are the simple payback and the discounted payback periods.

Part D:

What is the IRR if it used for the ten years with no market value? Is it a good investment in this way? If so why?

4) Consider total cost and total revenue given in the following table:

Quantity 0 1 2 3 4 5 6 7 7

Total Cost $120 150 160 170 190 230 300 410 610

Total Revenue $0 70 140 210 280 350 420 490 560

A. Create a table that includes the fixed cost at each level of output as well as the variable cost

at each level of output. If capital is fixed and the firm uses 10 units of capital, then what is

the price of capital? If labor is variable and the firm uses 5 units of labor to produce 3 units

of output, then what is the price of labor?

B. Create a table that includes the marginal cost, average variable cost, and average total cost

associated with each level of production. Graph these three cost measures on a single graph

with quantity on the horizontal axis. Explain how you know the firm exhibits the law of

diminishing returns.

C. Calculate profit (revenue minus costs) for each quantity. Calculate marginal revenue for

each quantity. Verify that the profit maximizing firm will choose the highest level of profit

at a point where MR = MC.

D. This firm is in a perfectly competitive industry? Explain how we know this is true. What

do you expect to happen in the long run in this industry? Will firms enter or leave the

market in the long run? Will the market price increase or decrease in the long run?

you have calculated the following , fixed cost = $6000/month , variable cost = $3/unit, revenue = $8/ unit. 1. what is the break even point of the process. 2. quantity to produce for profit of $2000 per year

QUESTION 12

Assume that a firm's marginal revenue barely exceeds marginal cost. To maximize profit, teh firm should:

QUESTION 13

In the short run, a perfectly competitive firm will stay in business as long as:

QUESTION 14

Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC), and the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would:

QUESTION 15

Where is the "short-run shut down point" for a perfectly competitive firm?

19. To maximize profits, a single-price monopolist will produce where Marginal costs = Marginal revenue: establishing a price that is greater than their marginal cost.

True

False

20. As a consequence of the perfectly competitive firm producing the quantity of output at which: price equals marginal revenue and marginal cost, it will achieve "allocative efficiency" in the deployment of societies scarce resources.

True

False

21. In the "long-run," the perfect competitive achieves technical efficiency and the firm will produce at: P = ATC = LRATC, assuring the consumer that the good or service is provided at the lowest possible price--given a constant state of technology.

True

False

22. Monopoly is never preferable to perfect competitive industry structures.

True

False

23. A cost that is incurred when an actual monetary payment is made by the firm is an "explicit (accounting) cost"--such as the payment of an electric bill or mortgage.

True

False

24. A firm is said to earn "normal profit" when it generates enough revenue to exactly cover its explicit and implicit cost(s) of production.

True

False

25. The MP or MPP (marginal product or marginal physical product) curve rises as the marginal cost curve falls in the area (range) of production subject to "increasing marginal returns."

True

False

26. In the short run, FC ("fixed cost") do not change as the output quantity increases.

True

False

27. In the short run, AFC ("average fixed cost") do not change as the output quantity increases.

True

False

28. As the output quantity continues to increase--moving to the right on the "X" (quantity of production) axis, the average variable cost curve gets closer to the average total cost curve in vertical analysis--reflecting change in the magnitude of the firm's "average fixed cost"--which necessarily, by definition, must continually decrease.

True

False

29. The AVC (average variable cost) equals VC (total variable cost) divided by the level of output (quantity) or "Q." Alternately: AVC = VC / Q.

True

False

30. The "onset of diminishing returns to productivity" causes the marginal product curve to peek and the marginal cost curve to bottom out.

True

False

31. The marginal cost curve, the average total cost curve, and the average variable cost curve are typically "U-shaped" ultimately due to the law of diminishing returns.

True

False

32. The LRATC (long run average total cost) curve is an historic envelop of the developing companies historic ATC curves--generally illustrating initial scale economies followed by constant return to scale and eventually diseconomies of scale (resulting from managerial inefficiency from BIGNESS or bureaucracy.)

True

False

33. Evolving "technology" does not and cannot affect the position of the LRATC curve.

True

False

34. In the long run

there can be no variable costs

all costs are fixed costs

none of these answers are correct

all costs are variable costs

35. If the AVC (average variable cost curve) is falling,

The MC curve must be above it at the level of output under consideration.

The MC curve must be below it at the level of output under consideration.

The MC curve is necessarily rising at the level of output under consideration

The MC curve is necessarily falling at the level of output under consideration.

36. The average-margin rule states that if the marginal magnitude (value) is

greater than the average magnitude, the average magnitude falls.

Rising, the average magnitude is necessarily above it.

Falling, the average magnitude is necessarily below it.

less than the average magnitude (value), the average magnitude falls.

37. The law of diminishing marginal returns to productivity holds for a situation in which

some inputs are variable and at least one input is fixed.

all inputs are variable.

all inputs are fixed.

none of these answers is correct.

38. Long run equilibrium for a perfectly competitive firm occurs when

P > MC > NROI > ATC

MC = MR = P > ATC

P = MC = MR = ATC = LRATC

M = MR = AFC = ATC

39. Which of the following is NOT considered a barrier to entry?

Diseconomies of scale

Government Licenses

Scale Economies

Control over essential resources

Patents

40. The "regulated monopolist" (natural monopoly) will be regulated to where

P = MR

P = AVC

P = MC

P = ATC

QUESTION 8

For a monopolist:

QUESTION 9

An example of price discrimination is the price charged for:

QUESTION 10

There is only one gas station within hundreds of miles. The owner finds that if she charges $3 a gallon, she sells 199 gallons a day, and if she charges $2.99 a gallon, she sells 200 gallons a day. The marginal revenue of the 200th gallon of gas is:

QUESTION 11

At the long-run equilibrium level of output, the monopolist's marginal cost will:

QUESTION 12

A monopolist will earn economic profits as long as his price exceeds:

QUESTION 13

A monopolist will maximize its profit by:

QUESTION 14

Both a perfectly competitive firm and a monopolist:

QUESTION 15

Without government regulation, the market outcome of monopoly: