Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 16, Problem 1SPPA
To determine
To show:
The profit maximizing price, output and economic profit on a graph representing
Expert Solution & Answer
Explanation of Solution
Given information:
| Price | Quantity | TR | MR |
| 10 | 0 | 0 | - |
| 8 | 2000 | 16000 | 8 |
| 6 | 4000 | 24000 | 4 |
| 4 | 6000 | 24000 | 0 |
| 2 | 8000 | 16000 | -4 |
| 0 | 10000 | 0 | 8 |
The graph represnting the demand and marginal revenue curve is as shown below:
According to the diagram, the AR represents the demand curve while the marginal revenue curve is represented by the green line. Since the marginal cost is zero, the MC curve overlaps over the horizontal axis (blue color). Marginal revenue curve intersects the marginal cost curve at output level 6000 units (profit maximizing level) and at this point, the profit-maximizing price is 4 dollars. However, the area marked by the yellow color represents the economic profit.
Economics Concept Introduction
Monopoly market is that market structure where a single firm enjoys the largest market share. The firm sells that commodity which has no close substitute and the entry for new firms in the monopoly market is very difficult.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Dana is a dot-com entrepreneur who has established a
Web site at which people can design and buy awatch.
Dana pays $200 a month for a Web server and Internet
connection. The watches that customers design are made
to order by another firm, and Dana pays this firm $60 a
watch. Dana has no other costs.
The table shows the demand schedule for Dana's
watches.
What is Dana's profit-maximizing output, price, and
economic profit?
Dana's profit-maximizing output is
Dana's profit-maximizing price is $
Dana's economic profit is $ a month.
watches a month.
a watch.
Price
(dollars per watch)
100
80
60
40
20
0
Quantity
(watches per month)
0
20
40
60
80
100
Kali is a dot-com entrepreneur who has established a Web site at which people can design and buy
aring.
Kali pays $600 a month for a Web server and Internet connection. The rings that customers design
are made to order by another firm, and Kali pays this firm $20 a ring. Kali has no other costs.
The table shows the demand schedule for Kali's
rings.
What is Kali's profit-maximizing output, price, and economic profit?
Price
(dollars per ring)
100
Quantity
(rings per month)
0
80
20
60
40
40
60
20
80
0
100
Kali's profit-maximizing output is
rings a month.
Kali's profit-maximizing price is $ a ring.
Kali's economic profit is $ a month.
not use ai please
Chapter 16 Solutions
Foundations of Economics (8th Edition)
Ch. 16 - Prob. 1SPPACh. 16 - Prob. 2SPPACh. 16 - Prob. 3SPPACh. 16 - Prob. 4SPPACh. 16 - Prob. 5SPPACh. 16 - Prob. 6SPPACh. 16 - Prob. 7SPPACh. 16 - Prob. 8SPPACh. 16 - Prob. 9SPPACh. 16 - Prob. 10SPPA
Ch. 16 - Prob. 11SPPACh. 16 - Prob. 1IAPACh. 16 - Prob. 2IAPACh. 16 - Prob. 3IAPACh. 16 - Prob. 4IAPACh. 16 - Prob. 5IAPACh. 16 - Prob. 6IAPACh. 16 - Prob. 7IAPACh. 16 - Prob. 8IAPACh. 16 - Prob. 9IAPACh. 16 - Prob. 10IAPACh. 16 - Prob. 1MCQCh. 16 - Prob. 2MCQCh. 16 - Prob. 3MCQCh. 16 - Prob. 4MCQCh. 16 - Prob. 5MCQCh. 16 - Prob. 6MCQCh. 16 - Prob. 7MCQ
Knowledge Booster
Similar questions
- The following table shows revenue, costs, and profits, where quantities are in thousands, and total revenue, total cost, and profit are in millions of dollars: Find the profit maximizing price and quantity. Price Quantity (1,000s) Total Revenue Marginal Revenue Total Cost Profit $ 100 0 $ 0 ---- $ 2 $ -2 90 100 9 $ 9 3 6 80 200 16 7 4 12 70 300 21 5 5 16 60 400 24 3 6 18 50 500 25 1 7 18 40 600 24 -1 8 16 30 700 21 -3 9 12 20 800 16 -5 10 6 10 900 9 -7 11 -2 0 1,000 0 -9 12 -12arrow_forwardOn a graph, show the demand for Elixir water and Elixir Spring’s marginal revenue curve. What are Elixir’s profit-maximizing price, output, and economic profit?arrow_forwardThe graph shows the demand curve and marginal revenue curve of Java Time, Inc., a producer of espresso machines in monopolistic competition. Draw the firm's marginal cost curve if Java Time produces 125 espresso machines a week. Label it Draw a point at the profit-maximizing quantity and price. if average total cost at the profit-maximizing quantity is $100 a machine, what is Java Time's economic profit? Java Time's economic pro t is $ Selected: none ON 804 604 0 Price and cost (dollars per machine) 25 50 75 100 125 150 1175 200 225 250 2 Quantity (espresso machines per week) >>> Draw only the objects specified in the question ate Clear ?arrow_forward
- Attempts 0 2. Calculating marginal revenue from a linear demand curve The blue curve on the following graph represents the demand curve facing a firm that can set its own prices. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. 160 140 120 100 A Demand 40 12 PRICE (Dollars per unit) 200 Keep the Highest 0/5 180 20 0 0 4 16 20 24 28 32 36 40 QUANTITY (Units) Graph Input Tool Market for Goods I Quanded (Units) Demand Price (Dollars per unit) 20 100.00 (?arrow_forward4. Francois owns a motel and monopolizes motel rooms along a remote stretch of south Texas highway. In March, Francois stayed open even though he earned negative economic profits. a. Draw a correctly and thoroughly labeled graph for Francois' motel during March and include each of the following: i. The profit-maximizing quantity and price, labeled QF and PF ii. The average total cost curve, labeled ATC iii. The rectangle indicating the negative economic profit, lightly shaded. b. What explains explains why Francois continued operating during March even though he was earning negative economic profits? c. In April, the fixed costs for Francois' motel decrease. Would Francois' profit-maximizing quantity increase, decrease, or stay the same in April? Explain.arrow_forwardPlease dont copy and paste the answers One of your former peers starts up a firm after graduating NYUAD. However, he didn’t take Markets so is unsure if he is behaving optimally. He’s asked you for help. His firm faces monopolistic competition, has diminishing returns to its inputs and uses a fixed input. He is producing at a quantity such that P=MC, and he makes a positive profit. a. Draw the Demand curve, MR, MC, and ATC reflecting this situation on a graph. Label the quantity, price and profit of the firm under his strategy. b. Is his strategy maximizing his profits? Explain how he would do so if not. Label the quantity, price and profit of the firm under the optimal strategy on your graph in part a. c. He asks you about what you predict might happen to his profits in the future. What do you expect will happen to profits in this industry as we go to long run and why? What is the key assumption of monopolistic competition that gives you your conclusion?arrow_forward
- The following graph shows Crest's demand curve, marginal-revenue (MR) curve, average-total-cost (ATC) curve, and marginal-cost (MC) curve. Use the black point (plus symbol) to indicate Crest's profit-maximizing output and price. (?) Price, Cost, Revenue Demand ATC O True MR Quantity of Crest Toothpaste True or False: Crest's profit is positive. + Profit Maxarrow_forwardnot use ai please don'tarrow_forwardside note number one is answered i need help with 2 , 3 and 4. Joyce owns a gas station and monopolizes gas sales along a remote stretch of road. In February, Joyce stayed open even though she earned negative economic profits. Draw a correctly labeled graph for Joyce’s gas station during February and show each of the following. The profit-maximizing output and price labeled QJ and PJ The average total cost curve labeled ATC A deadweight loss, completely shaded What must have been true for Joyce to continue operating during the month of February even though she earned negative economic profit? Assume that fixed costs for Joyce’s gas station decrease. Would Joyce’s profit-maximizing quantity increase, decrease, or stay the same in February? Explain. During the month of July, demand increases so that Joyce now earns a positive economic profit. However, she realizes her profits would have been higher if she had reduced the price of gasoline. At the quantity sold in…arrow_forward
- Ch 19 Economicsarrow_forward2017 International Practice Exam FRQ Joyce owns a gas station and monopolizes gas sales along a remote stretch of road. In February, Joyce stayed open even though she earned negative economic profits. a. Draw a correctly labeled graph for Joyce's gas station during February and show each of the following. i. The profit-maximizing output and price, labeled QJ and PJ ii. The average total cost curve, labeled ATC iii. Deadweight loss, completely shaded b. What must have been true for Joyce to continue operating during the month of February even though she earned negative economic profit? c. Assume that fixed costs for Joyce's gas station decrease. Would Joyce's profit-maximizing quantity increase, decrease, or stay the same in February? Explain. d. During the month of July, demand increases so that Joyce now earns a positive economic profit. However, she realizes her profits would have been higher if she had reduced the price of gasoline. i. At the quantity sold in July, was marginal…arrow_forwardPrice and costs (dollars per book) 50 40 30 20 10 0 1 MR MC D 2 3 4 5 6 Quantity (thousands of books per year) Bob's Books is the only bookstore in town. The figure above shows the demand curve for books and Bob's Books' marginal revenue curve and marginal cost curve. Bob's Books maximizes its profit and sets the price of a book equal to revenue of and has total annualarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax