Economics: Consider total cost and total revenue given in the following table

Subject: Economics    / General Economics
Question

Question:

4.Consider total cost and total revenue given in the following table:

Quantity

0

1

2

3

4

5

6

7

Total cost

$8

9

10

11

13

19

27

37

Total revenue

$0

8

16

24

32

40

48

56

a.Calculate profit for each quantity. How much should the firm produce to maximize profit?
b.Calculate marginal revenue and marginal cost for each quantity. Graph them. (Hint:Put the points between whole numbers. For example, the marginal cost between 2 and 3 should be graphed at 2½) At what quantity do these curves cross? How does this relate to your answer to part (a)?
c.Can you tell whether this firm is in a competitive industry? If so, can you tell whether the industry is in a long-run equilibrium?

2.

A publisher faces the following demand schedule for the next novel from one of its popular authors: PriceQuantity Demanded$1000 novels90100,00080200,00070300,00060400,00050500,00040600,00030700,00020800,00010900,00001,000,000 The author is paid $2 million to write the book, and the marginal cost of publishing the book is a constant $10 per book.
a.Compute total revenue, total cost, and profit at each quantity. What quantity would a profit-maximizing publisher choose? What price would it charge?
b.Compute marginal revenue. (Recall that MR = ?TR/?Q.) How does marginal revenue compare to the price? Explain.
c.Graph the marginal-revenue, marginal-cost, and demand curves. At what quantity do the marginal-revenue and marginal-cost curves cross? What does this signify?
d.In your graph, shade in the deadweight loss. Explain in words what this means.
e.If the author were paid $3 million instead of $2 million to write the book, how would this affect the publisher’s decision regarding what price to charge? Explain.
f.Suppose the publisher was not profit-maximizing but was concerned with maximizing economic efficiency. What price would it charge for the book? How much profit would it make at this price?
2.A small town is served by many competing supermarkets, which have the same constant marginal cost.
a.Using a diagram of the market for groceries, show the consumer surplus, producer surplus, and total surplus.
b.Now suppose that the independent supermarkets combine into one chain. Using a new diagram, show the new consumer surplus, producer surplus, and total surplus. Relative to the competitive market, what is the transfer from consumers to producers? What is the deadweight loss?
3.Johnny Rockabilly has just finished recording his latest CD. His record company’s marketing department determines that the demand for the CD is as follows: PriceNumber of CDs$2410,0002220,0002030,0001840,0001650,0001460,000 The company can produce the CD with no fixed cost and a variable cost of $5 per CD.
a.Find total revenue for quantity equal to 10,000, 20,000, and so on. What is the marginal revenue for each 10,000 increase in the quantity sold?
b.What quantity of CDs would maximize profit? What would the price be? What would the profit be?
c.If you were Johnny’s agent, what recording fee would you advise Johnny to demand from the record company? Why?

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