Explore BrainMass
Share

Calculating profit maximizing output level in the given case

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Please refer attached file for better clarity of table.

Consider the following demand schedule. Does it apply to a perfectly competitive firm? Compute marginal and average revenue.

Price Quantity Price Quantity
100 1 70 5
95 2 55 6
88 3 40 7
80 4 22 8

Suppose the marginal cost of producing the good in the question is a constant $10 per unit of output. What quantity of output will the firm produce?

© BrainMass Inc. brainmass.com October 17, 2018, 2:02 am ad1c9bdddf
https://brainmass.com/economics/price-levels/362760

Attachments

Solution Preview

Please refer attached file for better clarity of table.

Demand faced by perfectly competitive firm is perfectly elastic i.e. a horizontal line. Given demand schedule represents downward slopping demand. We can say that given demand schedule does not apply to perfectly competitive firm.

Price,P Quantity, Q Total Revenue, TR Marginal Revenue MR* Average Revenue, AR
P*Q TR/Q
100 1 100 ...

Solution Summary

Solution describes the steps to find out the profit maximizing output in the given case.

$2.19
Similar Posting

Profit maximization

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 demand and cost schedules shown in the spreadsheet that follows:

Number of Total Revenue Total cost
newspapers per day per day per day
(Q) $(TR) $(TC)
0 0 2,000
1,000 1,500 2,100
2,000 2,500 2,200
3,000 3,000 2,360
4,000 3,250 2,520
5,000 3,450 2,700
6,000 3,625 2,890
7,000 3,725 3,090
8,000 3,625 3,310
9,000 3,475 3,550

a.How many papers should be sold daily to maximize profit?
b. What is the maximum profit the El Dorado Star can earn?
c. What is the total fixed cost for the El Dorado Star? If the total fixed cost increases to $5,000, how many papers should be sold daily for profit maximization?

View Full Posting Details