Chapter16Graphs

# Chapter16Graphs - Ch 16 Figures Figure 16.1 Supersonic...

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Ch. 16 Figures Figure 16.1 Supersonic Econ’s Residual Demand Supersonic Econ guesses the other company produces 220 airplanes. Its residual demand, the remaining quantity of airplanes demanded after Laura’s company sells 220 airplanes, is market demand minus those 220 airplanes. Market demand, Supersonic Econ’s residual demand, and its marginal revenue based on this residual demand are calculated in the table and shown in the graph. 0 10 20 30 40 50 60 0 60 120 180 240 300 360 420 480 540 600 660 720 780 Quantity of Airplanes \$ / Airplane Quantity of Airplanes Residual Demand (\$) Price (\$) Total Revenue (\$) (TR) Marginal Revenue (\$) (MR) 00 6 5 . 0 0 60 0 60.00 120 0 55.00 180 0 50.00 220 0 46.67 0 _ 240 20 45.00 900 45.00 300 80 40.00 3200 38.33 360 140 35.00 4900 28.33 420 200 30.00 6000 18.33 480 260 25.00 6500 8.33 540 320 20.00 6400 -1.67 600 380 15.00 5700 -11.67 660 440 10.00 4400 -21.67 720 500 5.00 2500 -31.67 780 560 0.00 0 -41.67 D MR D market demand minus 220 airplanes market demand curve residual demand and marginal revenue assuming other firm produces 220 airplanes

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Ch. 16 Figures Figure 16.2 Supersonic Econ’s Profit Maximization Based on Residual Demand Supersonic Econ guesses the other company produces 220 planes. Supersonic Econ’s residual demand curve and marginal revenue curve based on this residual demand curve are shown with its cost curves added to evaluate how many planes it should produce to maximize profit. Profit is maximized where its marginal revenue and marginal cost are equal --- a quantity of 220 planes. The price of a plane is determined by market demand. A total of 440 planes --- 220 produced by Supersonic Econ and 220 produced by the other company --- are sold at a market price of \$28.33. The market is in equilibrium as each company correctly guesses that the other produces 220 planes. Profit for each company is shown in the graph by the rectangle shaded green. 300 Quantity of Airplanes 0 5 10 15 20 25 28.33 35 0 60 120 180 220 360 \$ / Airplane D MR MC AVC ATC produce 220 airplanes level of output where MR=MC set price of \$28.33 to sell that output Profit
Ch. 16 Figures Figure 16.3 A Monopoly Cartel Outcome for Paper Airplanes Bob and Laura agree to set a price to maximize their combined profit and together sell the quantity demanded at that price. The market demand and marginal revenue information with a monopoly in the paper airplane industry are shown in the graph. Profit is maximized selling 360 planes at a price of \$35. Their combined profit is shown by the rectangle shaded green in the graph.

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## This note was uploaded on 01/24/2012 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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Chapter16Graphs - Ch 16 Figures Figure 16.1 Supersonic...

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