ECON 101 Lecture Notes - Lecture 17: Marginal Revenue, Profit Maximization
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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?
Could you please ensure the data entered is correct? Thank you
Orginal Question:
Q * (Fields) | Price Per Ton | TR | MR Per Ton | FC | VC
| TC | Profit or loss | AFC Per Ton | AVC Per Ton | ATC Per Ton | MC Per Ton |
0 | $40.00 | $ 0 | |||||||||
1 | $40.00 | 24,000 | $59,000 | ||||||||
2 | $40.00 | 40,000 | |||||||||
3 | $40.00 | 60,000 | |||||||||
4 | $40.00 | 85,000 | |||||||||
5 | $40.00 | $156,000 | |||||||||
6 | $40.00 | 169,000 | |||||||||
7 | $40.00 | 221,000 | |||||||||
8 | $40.00 | 286,000 |
Filled in table, that I am requesting to be double checked:
Q * (Fields) | Price Per Ton | TR | MR Per Ton | FC | VC
| TC | Profit or loss | AFC Per Ton | AVC Per Ton | ATC Per Ton | MC Per Ton |
Q | P | P ⢠Q | ÎTR/ÎQ | FC+VC | TR-TC | FC/Q | TVC/Q | TC/Q | ÎTC/ÎQ | ||
0 | $40.00 | $0 | - | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
1 | $40.00 | 40,000 | $40 | 35,000 | 24,000 | $59,000 | -19,000 (Loss) | 35,000 | 24,000 | 59,000 | 59,000 |
2 | $40.00 | 80,000 | 40 | 35,000 | 40,000 | 75,000 | 5,000 (Profit) | 17,500 | 20,000 | 37,500 | 16,000 |
3 | $40.00 | 120,000 | 40 | 35,000 | 60,000 | 95,000 | 25,000 (Profit) | 11,667 | 20,000 | 31,667 | 20,000 |
4 | $40.00 | 160,000 | 40 | 35,000 | 85,000 | 120,000 | 40,000 (Profit) | 8,750 | 21,250 | 30,000 | 25,000 |
5 | $40.00 | 200,000 | 40 | 35,000 | 121,000 | $156,000 | 44,000 (Profit) | 7,000 | 24,200 | 31,200 | 36,000 |
6 | $40.00 | 240,000 | 40 | 35,000 | 169,000 | 204,000 | 36,000 (Profit) | 5,833 | 28,167 | 34,000 | 48,000 |
7 | $40.00 | 280,000 | 40 | 35,000 | 221,000 | 256,000 | 24,000 (Profit) | 5,000 | 31,571 | 36,571 | 52,000 |
8 | $40.00 | 320,000 | 40 | 35,000 | 286,000 | 321,000 | -1,000 (Profit) | 4,375 | 35,750 | 40,125 | 65,000 |
Based on your knowledge of the definition of the various measures of short-run cost, complete this table:
Q |
TC |
FC |
VC |
ATC |
AFC |
AVC |
MC |
0 |
100 |
x |
x |
x |
x |
||
1 |
275 |
||||||
2 |
265 |
||||||
3 |
160 |
||||||
4 |
85 |
||||||
5 |
525 |
||||||
6 |
120 |
||||||
7 |
95 |
||||||
8 |
770 |
||||||
9 |
95 |
||||||
10 |
125 |