Question

The firm’s revenue function is R=250q-6q² , cost function is C=10q+8q².

1. Use Excel to calculate the firm’s revenue, cost, and profit for q = 1 to q = 20 in increments of 1.Using Excel’s Charting tool, draw the graph of the profit curve and determine the profit maximizing level of output.

2. Based on these calculations, what output must you choose? Create columns in spreadsheet for MR and MC and verify that MR = MC at the profit-maximizing output level.

3. Now assume that you hire a manager who is paid 10% of the revenue and the manager wants to maximize revenue as well. How much output does the firm produce now? What is marginal revenue at this output level?

4. Now suppose that the firm is acquired and managed by a philanthropist who wants to promote recycling of used computers and therefore produces as much output as possible as long as the firm does not make losses. What output does the firm produce now?

Answer 1

1.

Profit is maximized at Q= 9 with profits of 1026(see the graph)

2.

MR = dR/dQ = 250-12q

MC=dC/dQ = 10 + 16q

250-12q = 10 + 16q

28q = 240

q = 8.57 or 8 units (Q at MR=MC)

3.

To maximise Revenue me take dR/dQ = 0

250-12q = 0

q = 250/12 = 20.83

4. After Q exceeds 17 units it will starts to make losses. so the firm will cease production at Q*=17 units