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Calculating profit maximizing output level in the given case

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?

Solution Preview

Please refer attached file for better clarity of tables and formulas.

Number of Total Revenue Total Cost Marginal Revenue Marginal Cost
Newspapers per day, Q per day, TR per day, TC MR* MC**
0 0 2000
1000 1500 2100 1.50 0.10
2000 2500 2200 1.00 0.10
3000 3000 2360 0.50 0.16
4000 3250 2520 0.25 0.16
5000 3450 2700 0.20 0.18
6000 3625 2890 0.18 0.19
7000 3725 3090 0.10 0.20
8000 3625 3310 -0.10 0.22
9000 ...

Solution Summary

Solution describes the steps to calculate optimal output level and profit associated with it. It also analyzes the effect of changes in fixed cost on optimal output level.

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