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Chapter 25: Q.1 (page 559)

The following table depicts the daily output, price, and costs of a monopoly dry cleaner located near the campus of a remote college town.

a. Compute revenues and profits at each output rate.

b. What is the profit-maximizing rate of output?

c. Calculate the dry cleaner's marginal revenue and marginal cost at each output level. What is the profit-maximizing level of output?

Short Answer

Expert verified

a. Shown in table

b. The maximum profit is at 5thand 6thunits

c. The profit-maximizing level of output is the 6th unit

Step by step solution

01

Introduction

profit maximization is the short run or long show cycle to which a firm might decide the value, information and output levels that lead to the most noteworthy benefit. In neoclassical financial matters, right now the standard way to deal with microeconomics, as a rule, models the firm as boosting benefit.

02

Explanation Part (a)

The revenues and profits at each output rate are shown

03

Explanation Part (b)

From the table, we can see that the profit-maximizing rate of output is the 5thand 6thunit.

04

Explanation Part (c)

The profit-maximizing level of output is shown

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Most popular questions from this chapter

A firm that sells e-books books in digital form downloadable from the Internet-sells all e-books relating to do-it-yourself topics (home plumbing, gardening, and the like) at the same price. At present, the company can earn a maximum annual profit of\(25,000when it sells 10,000copies within a year's time. The firm incurs a 50-cent expense each time a consumer downloads a copy, but the company must spend\)100,000per year developing new editions of the e-books. The company has determined that it would earn zero economic profits if price were equal to average total cost, and in this case it could sell 20,000copies. Under marginal cost pricing, it could sell 100,000copies.

a. In the short nun, what is the profit-maximizing price of e-books relating to do-it-yourself topics?

b. At the profit-maximizing quantity, what is the average total cost of producing e-books?

Discuss the special characteristics of an information product, and explain the implications for a producer's short-run average and marginal cost curves- In addition, explain why having a price equal to marginal cost is not feasible for the producer of an information product.

Classify each of the following as an example of direct, interactive, and/or mass marketing.

a. The sales force of a pharmaceutical company visits physicians' offices to promote new medications and to answer physicians' questions about treatment options and possible side effects.

b. A mortgage company targets a list of specific low-risk borrowers for a barrage of e-mail messages touting its low interest rates and fees.

c. An online bookseller pays fees to an Internet search engine to post banner ads relating to each search topic chosen by someone conducting a search. In part, this helps promote the bookseller's brand, but clicking on the banner ad also directs the person to a Web page displaying books on the topic that are available for purchase.

d. A national rental car chain runs advertisements on all of the nation's major television networks.

If efforts by traditional financial-planning firms to promote their financial therapy services prove successful, what will happen to the positions of and shapes of the demand curves that they face? Explain.

Calculate total average costs for the bookstore in Problem 25-5. Illustrate the store's short-run equilibrium by calculating demand, marginal revenue, average total costs, and marginal costs. What is its total profit?
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