Question

The table below shows the total cost (TC) and marginal cost (MC) for Choco Lovers, a monopolistic firm producing different quantities
of chocolate gift boxes. Fill in the blanks in the table.

Answer 1

Answer:

  Spreadsheet values

• B3 = $15 (shown)
• C4 = $420 (shown)
• D6 = $272.5
• E4 = $6
• F2 = $16
• F6 = $5

  Other values

• profit maximizing Q: 35
• profit maximizing P: $13
• maximum profit: $227.5

Step-by-step explanation:

Labeling the columns of the spreadsheet A--F, and the rows 1--7, we want to find the values as follows.

a) The relationship between quantity, price, and revenue is ...

  total revenue = quantity × price

  price = (total revenue)/quantity

Then ...

• B3 = 375/25 = 15 (as shown)
• C4 = 30×14 = 420 (as shown)

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b) The relationship between total cost and marginal cost is ...

  mc2 = (tc2 -tc1)/(q2 -q1)

  tc2 = (mc2)(q2 -q1) +tc1

Then ...

• D6 = 9(40 -35) +227.5 = 272.5
• E4 = (192.5 -162.5)/(30 -25) = 6

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c) Marginal revenue is figured the same way as marginal cost.

  mr2 = (r2 -r1)/(q2 -q1)

Then ...

• F2 = (320 -0)/(20 -0) = 16
• F6 = (480 -455)/(40 -35) = 5

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d) The quantity maximizing profit will be the quantity such that marginal revenue is equal to marginal cost. That is, marginal profit is zero. That quantity  is 35, where both marginal cost and marginal revenue are 7.

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e) The price at a quantity of 35 is 13. This value is read from the given table.

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f) The maximum profit is the difference between revenue and cost at the profit-maximizing quantity:

  maximum profit = 455 -227.5 = 227.5