Econ528Spring2011Project-1Guidelines

Econ528Spring2011Project-1Guidelines - University of...

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University of Louisiana at Lafayette Econ 528: Managerial Economics Spring 2011 Project - 1 Due on: March 29, 2011 1. Marginal Analysis . Consider the price (P) and output (Q) data in the following table. Q P TR MR AR 0 $35 1 30 2 25 3 20 4 15 5 10 6 5 7 0 A. Calculate the related total revenue (TR), marginal revenue (MR), and average revenue (AR) figures. B. At what output level is revenue maximized? 2. Profit Maximization . Fill in the missing data for price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), profit ( π ), and marginal profit (M π ) in the following table. Q P TR = P × Q MR = TR/ Q TC MC = TC/ Q π = TR - TC M π = π / Q 0 $200 $ 0 -- $ 0 -- $ 0 -- 1 180 180 $180 100 $100 80 $ 80 2 320 175 65 3 420 100 240 65 180 4 120 60 55 185 5 5 100 500 350 55 150 - 35 6 80 480 - 20 400 - 70 7 60 - 60 450 50 - 30 - 110 8 320 - 100 55 - 185 - 155 9 20 180 570 65 - 205 10 10 - 80 750 180 - 650 - 260 A. At what output (Q) level is profit maximized? B. At what output (Q) level is revenue maximized? Page 1 of 6
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3. Profit Maximization: Equations . Woodland Instruments, Inc. operates in the highly competitive electronics industry. Prices for its R2-D2 control switches are stable at $100 each. This means that P = MR = $100 in this market. Engineering estimates indicate that relevant total and marginal cost relations for the R2-D2 model are: TC = $500,000 + $25Q + $0.0025Q 2 MC = TC/ Q = $25 + $0.005Q A. Calculate the output level that will maximize R2-D2 profit. B. Calculate the maximum profit. 4. Profit Maximization: Equations . Lone Star Insurance offers mail-order automobile insurance to preferred-risk drivers in the state of Texas. The company is the low-cost provider of insurance in this market with fixed costs of $18 million per year, plus variable costs of $750 for each driver insured on an annual basis. Annual demand and marginal revenue relations for the company are: P = $1,500 - $0.005Q MR = TR/ Q = $1,500 - $0.01Q A. Calculate the profit-maximizing output level. B. Calculate the company's optimal profit. 5.
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Econ528Spring2011Project-1Guidelines - University of...

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