9. Critical analysis Q17
Rod N. Reel owns a dealership that sells fishing boats in an open, pricesearcher market. To develop his pricing strategy, Rod hired an economist to estimate his demand curve. The first two columns of the chart provide the data for the expected weekly quantity demanded for Rod's fishing boats at alternative prices. Rod's marginal (and average) cost of supplying each boat is constant at $7,000 per boat, no matter how many boats he sells per week in this range. This cost includes all opportunity costs and represents the economic cost per boat.
Complete the following table by finding the total revenue and total cost per week at each quantity, the marginal revenue and marginal cost from the sale of each additional boat, and the economic profit per week at each quantity.
Price of Fishing Boats 
Fishing Boats Sold 
Total Revenue 
Marginal Revenue 
Total Cost 
Marginal Cost 
Economic Profit 

(Boats per Week) 
($ per Week) 
($ per Week) 
($ per Week) 
($ per Week) 
($ per Week) 

$9,000  0  $0  $0  $0  
$7,000  
$8,000  1  
$7,000  
$7,000  2  
$7,000  
$6,000  3  
$7,000  
$5,000  4  
$7,000  
$4,000  5  
If Rod wants to maximize his profits, he should charge a price of per boat. At this price, Rod will sell boats per week at the profitmaximizing price.
At this price and sales volume, Rod’s profits per week will be
True or False: At the price and sales level where profits are maximized, Rod has sold all boats that have higher marginal revenue than marginal cost.
True
False
Rod's profits are typical of all firms in the boat sales business.
These profits will induce firms to the industry until economic profits are eliminated
Recall the relationship between elasticity of demand, price changes, and their impact on total revenues.
As Rod lowers his price from $9,000 to $5,000 his total revenues keep . Thus, demand is over this range of prices.
When Rod lowers his price from $5,000 to $4,000, his total revenues . Thus, demand is between these two prices.
If Rod wants to maximize his
profits, he should charge a price of $8000 per boat. At this price,
Rod will sell 1 boat per week at the profitmaximizing price.
At this price and sales volume, Rods profits per week will be
$1000
True
True, as it is in perfect competition
These profits will induce to enter the industry until economic
profits are eliminated
From $9000 to $5000, the demand is elastic between these two
prices
From $5000 to $4000, the demand is inelastic between these two
prices
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