ecw2731 tutorial 3 solutions

# ecw2731 tutorial 3 solutions - ECW 2731 Managerial...

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ECW 2731 Managerial Economics Semester 2, 2007 Tutorial Exercise 3 – Solutions 1 . Refer ST2.1 Profit versus Revenue Maximization in Chapter 2, pp.44-45 of the Textbook. Presto Products, Inc., manufactures small electrical appliances and has recently introduced an innovative new dessert maker for frozen yogurt and fruit smoothies that has the clear potential to offset the weak pricing and sluggish volume growth experienced during recent periods. Monthly demand cost relations for Presto's frozen dessert maker are as follows: P = \$60 - \$0.005Q TC = \$100,000 + \$5Q + \$0.0005Q 2 MR = TR/ Q = \$60 - \$0.01Q MC = TC/ Q = \$5 + \$0.001Q A. Set up a table or spreadsheet for Presto output (Q), price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), total profit (π), and marginal profit (Mπ). Establish a range for Q from 0 to 10,000 in increments of 1,000 (i.e., 0, 1,000, 2,000, . .., 10,000). A table or spreadsheet for Presto output (Q), price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), total profit (π), and marginal profit (Mπ) appears as follows: Units Price Total Revenue Marginal Revenue Total Cost Marginal Cost Total Profit Marginal Profit 0 \$60 \$0 \$60 \$100,000 \$5 (\$100,000) \$55 1,000 55 55,000 50 105,500 6 (50,500) 44 2,000 50 100,000 40 112,000 7 (12,000) 33 3,000 45 135,000 30 119,500 8 15,500 22 4,000 40 160,000 20 128,000 9 32,000 11 5,000 35 175,000 10 137,500 10 37,500 0 6,000 30 180,000 0 148,000 11 32,000 (11) 7,000 25 175,000 (10) 159,500 12 15,500 (22) 8,000 20 160,000 (20) 172,000 13 (12,000) (33) 9,000 15 135,000 (30) 185,500 14 (50,500) (44) 10,000 10 100,000 (40) 200,000 15 (100,000) (55)

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B. Using the Presto table or spreadsheet, create a graph with TR, TC, and π as dependent variables, and units of output (Q) as the independent variable. At what price/output combination is total profit maximized? Why? At what price/output combination is total revenue maximized? Why? The price/output combination at which total profit is maximized is P = \$35 and Q = 5,000
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## This note was uploaded on 10/22/2009 for the course EC 273 taught by Professor Martin during the Fall '08 term at N.C. State.

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ecw2731 tutorial 3 solutions - ECW 2731 Managerial...

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