Question

# 2.)       For a price-searcher, assume the demand curve is Q = 20 - P. a.)       ...

2.)       For a price-searcher, assume the demand curve is Q = 20 - P.

a.)        Construct a four-column table of P and Q with P ranging from 20 to 0. Calculate TR and MR and add them to your table.

b.)       Graph D and MR. (Plot points—with \$ on the vertical axis and Q on the horizontal axis.)

c.)        Why is P > MR (after the first unit)

3.)       Using the same price-searcher, assume the firm faces the following total costs (TC) with Q ranging from 0 to 10: \$10, 12, 13, 15, 18, 22, 27, 33, 40, 48, and 57.

1.)        Add TC, FC, VC and MC (marginal cost), and profits to the above table.

2.) Determine profit-maximizing equilibrium output. What's happening with MR and MC at that point?

2) Q = 20 - P

a) Total Revenue = P * Q

MR = TR from current unit - TR from previous unit

 P Q TR MR 0 20 0 - 1 19 19 19 2 18 36 17 3 17 51 15 4 16 64 13 5 15 75 11 6 14 84 9 7 13 91 7 8 12 96 5 9 11 99 3 10 10 100 1 11 9 99 -1 12 8 96 -3 13 7 91 -5 14 6 84 -7 15 5 75 -9 16 4 64 -11 17 3 51 -13 18 2 36 -15 19 1 19 -17 20 0 0 -19

b)

c) P > MR because producers tends to sell additional goods at lower selling price than the previous selling price which tends to reduce marginal revenue.

3)

1) Profit = TR - TC

 Q TC FC VC MC P TR MR Profit 0 10 10 0 - 20 0 - - 1 12 10 2 2 19 19 19 7 2 13 10 3 1 18 36 17 23 3 15 10 5 2 17 51 15 36 4 18 10 8 3 16 64 13 46 5 22 10 12 4 15 75 11 53 6 27 10 17 5 14 84 9 57 7 33 10 23 6 13 91 7 58 8 40 10 30 7 12 96 5 56 9 48 10 38 8 11 99 3 51 10 57 10 47 9 10 100 1 43

2) Profit is maximum when MR = MC or they are close to each other. They are close when 7 units are produced where profit is \$58. MC is rising and MR is falling at that point of output.

#### Earn Coins

Coins can be redeemed for fabulous gifts.