Chapter 68, Problem 1FRQ

a)

To determine

To calculate: The marginal revenue.

Answer to Problem 1FRQ

The marginal revenue is $ 8,000

Explanation of Solution

Marginal Revenue can be calculated as”

  $\begin{array}{c}\text{Marginal Revenue = }\frac{\text{Change}\text{in}\text{Revenue}}{\text{Change in Quantity}}\\ =\frac{\$38,000-\$30,000}{1}\\ =\$8,000\end{array}$

Economics Concept Introduction

Introduction:

Advertisements: is defined as a piece of information on television, in a newspaper, or a picture on a wall, etc. that persuades people to purchase something or provides them an interest in a new job.

Marginal revenue: is regarded as the rise in revenue that results from the sale of one additional unit of output.

b)

To determine

To explain: Whether the firm should run a 3^rd commercial.

Explanation of Solution

Yes, the firm should be running the 3^rd commercial. The basic reason behind running the third commercial is that the marginal revenue of $6,000 exceeds the marginal cost of $1,000.

Economics Concept Introduction

Introduction:

Advertisements: is defined as a piece of information on television, in a newspaper, or a picture on a wall, etc. that persuades people to purchase something or provides them an interest in a new job.

c)

To determine

To state: the number of commercials the firm should run to maximize profits.

Explanation of Solution

The firm should be running 5 commercials as it is clear from the table that the MR exceeds the MC for the first 5 commercials and MR is less than the MC for the 6^th commercials.

MR increases like: $20,000 to $ 30,000 to $38,000 to $44,000 to $48,000 to $50,000. For the first 5 years and for the 6^th year the increase is only $500 which is less than the MC of $1000.

Economics Concept Introduction

Introduction:

Advertisements: is defined as a piece of information on television, in a newspaper, or a picture on a wall, etc. that persuades people to purchase something or provides them an interest in a new job.