Question

$The El Dorado Star is the only newspaper in El Dorado, New Mexico. Certainly, the Star competes with The Wall Street Journal, USA Today, and the New York Times for national news reporting, but the Star offers readers stories of local interest, such as local news, weather, high- school sporting events, and so on. The El Dorado Star faces the demand and cost schedules shown in the spreadsheet that follows:

Number of newspapers per day ( Q)	Total Revenue by day $(TR)	Total cost per day $(TC)
0	0	2,000
1,000	1,500	2,100
2,000	2,500	2,200
3,000	3,000	2,360
4,000	3,250	2,520
5,000	3,450	2,700
6,000	3,625	2,890
7,000	3,725	30,90
8,000	3,625	3,310
9,000	3,475	3,550

a. Please calculate and show the marginal revenue and marginal cost in another two columns.

b. How many papers should be sold daily to maximize profit?

c. What is the maximum profit the El Dorado Star can earn?

Answer 1

a)

Q	TR	TC	MR	MC
0	0	2000	-	-
1000	1500	2100	1500	100
2000	2500	2200	1000	100
3000	3000	2360	500	160
4000	3250	2520	250	160
5000	3450	2700	200	180
6000	3625	2890	175	190
7000	3725	3090	100	200
8000	3625	3310	-100	220
9000	3475	3550	-150	240

b) SInce El Dorado star is the only newspaper in El Dorado, therefore equilibrium is attained at a poinwt where MR = MC and Mc is rising.

Thus, it should sell 5000 newspapers daily (since at Q = 5000, MR>MC and MC is rising after that).

c) Maximum profit = TR - TC

= 3450 - 2700 = $750.