Question

A manufacturer hires temporary workers in its production plant to produce electric cars. The fixed costs are $300,000 for the depreciation of the facility and $80,000 for utilities. The only variable cost is $20 per hour of labor hired. The production of each car requires 50 hours of labor. Currently, the market price of the electric car is $20,000.

Suppose unit sales are labeled Q, complete the revenue, cost, and profit functions. Use comma as thousand separators)

Total revenue (TR) =   Q +  . (for example, TR = 10,000 Q + 30,000)

Total costs (TC) = total variable cost + total fixed costs =   Q +   (for example, TC = 10,000 Q + 30,000)

Total profit (pi) = TR - TC =   Q -   (for example, pi = 10,000 Q - 30,000)

Average profit (pi_A) =   -  /Q (for example, pi_A = 10,000 - 30,000/Q)

Marginal profit =   

Answer 1

We can derive the revenue, cost and profit functions as follows:

Total revenue (TR) can be obtained by multiplying price of the electric car with the unit sales or quantity sold.

Total Revenue (TR)=20,000 Q

Total costs of a firm comprises of its total fixed cost and total variable cost.

Total Costs (TC)=Total Fixed Costs+Total Variable Costs

Total Costs (TC)=380,000+20 X 50 Q

Total Costs (TC)=380,000+1000 Q

Total profit for a firm can be obtained by subtracting total costs from total revenue.

Total Profit=TR-TC

Total Profit=20000 Q - 380,000 - 1000 Q

Total Profit=19000 Q - 380,000

Average profit can be obtained by dividing total profit by units sold.

Marginal profit can be obtained by differentiating the total profit function with respect to Q.