Question

On Jetstar flights, passengers have to pay extra for food and drinks. Assume the only product that Jetstar sells on the plane is packets of potato chips. Each packet costs Jetstar $4 (hint: the marginal cost is constant at $4 per packet). Currently Jetstar charges $4.50 for a packet of chips. Below is a table of potential prices Jetstar could charge and the corresponding quantities.

Price ($/packet)	Quantity (packets)
6.50	30
6.00	42
5.50	56
5.00	72
4.50	92
4.00	105

Answer the following questions:

1. What is Jetstar's marginal revenue when the price is $4.50 per packet? Answer to the nearest two decimal places. $_____________ per packet.
2. At a price of $4.50 per packet, should Jetstar decrease or increase the packets of chips sold to maximise profit? _____________. Type D for Decrease or I for Increase.
3. Calculate Jetstar's profit-maximising quantity of packets to sell. Answer to the nearest whole number (with no decimal places)._____________ packets.

Answer 1

Price	Quantity	Revenue	Marginal Revenue
6.50	30	195	195/30 = 6.5
6.00	42	252	56/12 = 4.67
5.50	56	308	55/14 = 3.29
5.00	72	360	52/16 = 3.25
4.50	92	414	54/20 = 2.7
4.00	105	420	6/13 = 0.46

a. At a price of $4.50 per packet, the marginal revenue is $2.70

b. At a price of $4.50 per packet, Jetstar should decrease the packets of chips sold to maximize profit, as the marginal revenue of $3.25 is more than $0.46.

c. If MC is constant at $4, then the profit-maximizing quantity should be somewhere between 42 and 56, because the profit maximizing condition is MR=MC=$4. Therefore, the profit maximizing quanitity is approximately 48