Purchase Solution

Short Run Profit Margin

Not what you're looking for?

Ask Custom Question

1. Locate and explain how the optimal output maximizes the per unit profit (II).
2. What happens to profit if outputs are below or above the optimal output level?
3. Summarize the short run profit. Use numbers.

Refer to the attached image for more information on the numbers to include in the calculations and how to present the numbers in a table.

Attachments
Purchase this Solution
Solution Summary

The solution presents the formulas of Total Revenue, Marginal Revenue, Marginal Cost, Average Total Cost, Gross Profit, and Per Unit Profit.
It shows the calculation of these numbers using an EXCEL spreadsheet.
It provides a detailed explanation about how the gross profit and per unit profit are maximized.

Solution Preview

See the attached file.

1. Locate and explain how the optimal output maximizes the per unit profit (II).
Let's complete the table by the following calculation:
Total Revenue = Price * Quantity, i.e. TR = P*Q
e.g., TR(1) = 1*5 = 5, and TR(2) = 2*5 = 10

Marginal Revenue (MR) = change in TR for an additional unit of Q.
e.g., MR for Q=2 is TR(2) - TR(1) = 10-5 = 5

Marginal Cost (MC) = change in TC for an additional unit of Q.
e.g., MC for Q=2 is TC(2) - TC(1) = 18.50-17.00 = 1.50

Average Total Cost (ATC) = TC/Q
e.g., ATC(2) = 18.50/2 = 9.25

Gross Profit = TR - TC
e.g., Profit(2) = 10-18.50 = -8.50

Per Unit Profit = Gross Profit / Q
e.g., Per Unit Profit (2) = -8.50/2 = ...

Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

View More Free Quizzes
Related BrainMass Solutions

  • Domino Co.

    What is the contribution margin per machine-hour for small units? 2. If management incorporates a short-run profit maximizing strategy, which of the three product models should be produced first? 3.

  • Managerial Economics for the El Dorado Star

    How many papers should be sold in the short run? What should the owners of the Star do in the long run? a. See the attached file. b. Profit increases as long as MR>MC.

  • Determine the amount of profit or loss

    Determine the output level that Johnston production should use for maximizing profit. Determine the amount of profit or loss that Johnston production will experience in the short run.

  • increase in the fixed cost

    An increase in the fixed cost does not alter the margin at cost at all, so it has no effect on the profit-maximizing quantity of output produced in the short run.

  • The Costs of Production

    produce in the short run. 2nd part: Question 1: in the table below, complete the short run supply schedule for the firm (column 2) and indicate the profits/losses (column 3) at each price/output: The short run supply and profit: (1) (2)

  • Absorption Income versus Contribution Margin Income

    Contribution margin Income Statement is useful for decision-makers because it separates out the expense that will respond or grow/shrink with activity and those that will not change in the short run (fixed costs).

  • Marginal Cost and Production

    So the firm will still produce in the short run. When Q = 6, The profit (loss) is Profit = (P-AC)Q = (41 - 47.50)*6 = -39 The contribution margin is determined.

  • Short-Run/Long-Run Costs and Output Decisions

    It helps in calculating contribution margin and knowing about the profitable combination. It also helps in knowing about the margin of safety and doing the target profit analysis.

  • economic profit or loss

    122576 Short Run Production At a product price of $32 will this firm produce in the short run? Why or why not? If it is preferable to produce, what will be the profit- maximizing or loss-minimizing output? Explain.

  • CVP Analysis

    Contribution margin gives you an easy way to understand what will change since the costs not in contribution margin (fixed costs) do not change (as least in the short run). -------------- Your response is 236 words including discussing the four

View More Related Solutions