ECON 103 Lecture Notes - Lecture 3: Marginal Revenue, Sunk Costs, Marginal Cost

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fuchsiabee599

14 Sep 2018

School

Simon Fraser University

Department

Economics

Course

ECON 103

Professor

ALL

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Emily"s marginal willingness to pay is her demand price. Q* is where mc = mb, and mc = . 14 = 0. 5q q = 14/ 0. 5 = 28. Sam"s sandwich truck has costs given by mc = 1 + 0. 2q: what would it cost sam to produce a. Mc = p = 1 + 0. 2(30) = : how many sandwiches should sam sell if he can charge. Q* is where mc = mr = p. Mr = change in tr / change in q. Mc = change in tc / change in q. The table below shows revenue and cost information for. Marginal net gain = sh: sunk costs. Sunk costs = costs that cannot be recovered or changed. Examples: rent, haircuts, car repairs, time already spent doing an activity, investment losses, lottery tickets, accidents. Since sunk costs cannot be changed they should be excluded from current decisions accept the loss and move on.

Related Questions

PROFIT MAXIMIZATION

Reminders:

Q: Quantity, TC: Total Costs, VC: Variable Costs, MC: Marginal Costs, MR: Marginal Revenue, TR: Total Revenue

1. Suppose the market for DVD movies is perfectly competitive. The industry price for the movies is $24, and a typical firm has the following total cost data:

Q	TC	VC	MC	MR	TR	Net Profit
0	10
1	33
2	53
3	70
4	90
5	114
6	143

a. Calculate the TR, MR, and MC for each level of output.

b. What condition must be met for the firm to maximize profits? What is the profit maximizing level of output and price for this firm? How much profit would be made?

2. Now suppose that some firms have been able to differentiate their DVDs, and the market has become monopolistically competitive. A typical firm now has the following demand schedule and total cost data:

Q	P	TC	VC	MC	MR	TR	Net Profit
0	40	8
1	35	20
2	30	28
3	25	40
4	20	56
5	15	76
6	10	100

a. Calculate the TR, MR, and MC for each level of output.

b. What condition must be met for the firm to maximize profits? What is the profit maximizing level of output and price for this firm? How much profit would be made?

Swizzle sticks are used to stir mixed drinks such as Rob Roys, Manhattans, and Jack and Coke. There are many producers of swizzle sticks, selling them in boxes containing 100 swizzle sticks. There are many buyers of swizzle sticks, ranging from bars to airlines to grocery stores. The market demand for swizzle sticks is Q_D = 20 20P. The market supply for swizzle sticks is Q_S = 5 + 30P, where P is the price of a box of swizzle sticks and Q_D and Q_S are millions of boxes of swizzle sticks.

Happy Hour LLC produces and sells swizzle sticks. Happy Hour's marginal cost for producing boxes of swizzle sticks is MC = 0.1 + 0.002q, where q is the number of boxes of swizzle sticks Happy Hour produces and sells. Happy Hour's average variable cost for producing boxes of swizzle sticks is AVC = 0.1 + 0.001q. Happy Hour runs a dirt-cheap operation, with their fixed cost for producing swizzle sticks at $30.

1. What price should Happy Hour sell their swizzle sticks for?

2. How many boxes of swizzle sticks should Happy Hour produce and sell?

3. How much profit does Happy Hour make from producing and selling their swizzle sticks?

4. The supplier of wood used to produce Happy Hour's swizzle sticks increases his prices. Happy Hour's marginal cost after the price of wood increasing is now MC = 0.1 + 0.003q and its average variable cost is now AVC = 0.1 + 0.002q.

a. How many swizzle sticks do Happy Hour now produce?

b. Should Happy Hour close down their operations since they now have to pay more for the wood? Why or why not?

skyraven707

A minor league baseball team called the Billing Mustangs attracts both students and non-students as fans during the season, which runs from mid-April through August. The Mustangs organization has estimated that, among students, weekly demand for tickets varies according to the equation Q=1400 - 200P, where Q is the number of tickets sold and P is the price in dollars. Among non-students, weekly demand is given by the equation Q = 1000 - 100P. The Mustangs organization earns marginal revenue from students according to the equation MR = 7 - 0.01Q and from non-students according to the equation MR= 10 - 0.02Q. The Mustangs incur a marginal cost of 3$ among all fans. The Mustangs would like to charge different prices for students and non-students.

A) How many tickets would the Mustangs sell to students, to maximize profit? What price would the team charge to students?

B) How many tickets would the Mustangs sell to non-students, to max profit? What price would the team change to non-students?

C) Whether selling ticket packs to students or non-students, the Mustangs organization incurs total costs according to the equation TC=300 +3Q. If the Mustangs succeed at price discrimination, how much economic profit (or loss) will the team earn selling tickets to students? How much will it earn selling tickets to non0students? How much total economic profit will the team earn?

D) Suppose the Pioneer League, in which the Billings Mustangs play, prohibits price discrimination in this way and forces the club to change a single price to all fans. How many tickets would the Mustangs sell to non-students if they charged non-students the student's price (part A)? Show that MR does not equal MC in this situation. How many tickets would the Mustangs sell to students if they charged students the non-students price (part B) Show that MR does not equal MR in this situation?

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ECON 103 Lecture Notes - Lecture 3: Marginal Revenue, Sunk Costs, Marginal Cost

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