mgr econ 7 - the last wine decanter sold MC= 40 0.005Q...

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Bavarian Crystal Works designs and produces lead crystal wine decanters for export to international markets. The production manager of Bavarian Crystal Works estimates total and marginal production costs to be TC = 10,000 + 40Q + 0.0025Q 2 MC = 40 + 0.005Q where costs are measured in U.S. dollars and Q is the number of wine decanters produced annually. Because Bavarian Crystal Works is only one of many crystal producers in the world market, it can sell as many of the decanters as it wishes for $70 each. Total revenue and marginal revenue are TR = 70Q MR = 70 where revenues are measured in U.S. dollars and Q is annual decanter production. a.What is the optimal level of production of wine decanters? What is the marginal revenue from
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Unformatted text preview: the last wine decanter sold? MC= 40 +0.005Q 70=40+0.005(6000) MR(70)=40 + 0.005Q 70-30+40 30/0.005Q= 6000 70=70 Q=6000 Marginal Revenue is the same at $70 b. What are the total revenue, total cost, and net benefit (profit) from selling the optimal number of wine decanters? TR is $420,000 70(6000)=$420,000 TR=420,000 TC=340,000 TC= 10,000+40(6000)+0.0025(6000)^2 TC=$340,000 To obtain the NB you take TR-TC, (420,000-340,000)=80,000 NB c. At the optimal level of production of decanters, an extra decanter can be sold for $70, thereby increasing total revenue by $70. Why does the manager of this firm not produce and sell one more unit? c) MR=MC, at optimum level, producing more will not increase profits....
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This note was uploaded on 04/14/2010 for the course ECON 2345 taught by Professor Jamison during the Spring '10 term at York University.

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