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    Basic Microeconomics Marginal Costs

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    The El Dorado Star is the only newspaper in El Dorado, New Mexico. Certainly, the Star competes with The Wall Street Journal, USA Today, and the New York Times for national news reporting, but the Star offers readers stories of local interest, such as local news, weather, high-school sporting events, and so on. The El Dorado Star faces the revenue and cost schedules shown in the spreadsheet that follows:

    A template for the spreadsheet is provided in the Course Materials. You may download my template or create your own. Since we are using dollars and cents, be sure to go out two decimal places on your calculations. Add columns to show, respectively, marginal cost (MC), marginal revenue (MR), and total profit.

    Number of Newspapers Total Revenue (including Total Cost
    per day (Q) advertising revenue) for the per day (TC)
    Day (TR)
    1,000 3,250 3,500
    2,000 4,250 3,600
    3,000 4,750 3,700
    4,000 5,000 3,860
    5,000 5,200 4,020
    6,000 5,375 4,300
    7,000 5,400 4,500
    8,000 5,375 4,590
    9,000 5,225 4,810
    1.What is the value of MR when Q = 8,000?

    2.What is the value of MC when Q = 8,000?

    3.How many papers should the manager of the El Dorado Star print and sell daily? Explain your choice in 25 - 50 words.
    4.How much profit (or loss) will the Star earn at the level of output you chose in #3?

    5.At the profit-maximizing output level you reported in question 3, is the El Dorado Star making the greatest possible amount of TOTAL REVENUE? Explain in 50-100 words why or why not.

    6.What is the total fixed cost for Star?

    7.If Star's total fixed costs were to DOUBLE for some reason, how much profit (or loss) does Star make when fixed costs are doubled?

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    Solution Summary

    Problem provides simple way to look into concept of Marginal Cost and Marginal Revenue and its implication on Total Revenue and Total Profit.