Essay on Problem 1

A yo-yo manufacturer is producing 5,000 yo-yos selling them for $1.50 each. At this level of output, marginal revenue is $1.50. From this information, we can conclude that the yo-yo manufacturer

a) In the first set of calculations, the staff used a discount rate of 20%, a five-year time horizon, and ignored taxes and terminal value. What is the relative attractiveness of these three alternatives?

B. Electric companies are keeping middle and lower income families’ one bill away from a financial disaster.

The price of cheese and milk in the market are $2 and $5 respectively.  Assume that the cheese and milk markets are perfectly competitive. What output of milk maximizes profits?

* Use the profit maximization rule MR = MC to determine your optimal price and optimal output level now that you have market power. Compare these values with the values you generated in Assignment 1. Determine whether your price higher is or lower.)

They are thinking about making the movie available for download on the Internet, and they can act as a single-price monopolist if they choose to. Each time the movie is downloaded, their Internet service provider charges them a fee of $4. The Baxter brothers are arguing about which price to charge customers per download. The accompanying table shows the demand schedule for their film. Price of download Quantity of downloads demanded $10 0 $8 1 $6 3 $4 6 $2 10 $0 15 a. Calculate the total revenue and the marginal revenue per download. b. Bob is proud of the film and wants as many people as possible to download it. Which price would he choose? How many downloads would be sold? c. Bill wants as much total revenue as possible. Which price would he choose? How many downloads would be sold? d. Ben wants to maximize profit. Which price would he choose? How many downloads would be sold? e. Brad wants to charge the efficient price. Which price would he choose? How many downloads would be sold? Answer to Question: a. The accompanying table calculates total revenue (TR) and marginal revenue (MR). Recall that marginal revenue is the additional revenue per unit of output Price of download Quantity of downloads TR MR demanded $10 0 $0 $8 1 $8 $8 $6 3 $18 $5 $4 6 $24 $2 $2 10 $20 $-1 $0 15 $0 $-4 b. Bob would charge $0. At that price, there would be 15 downloads, the largest quantity they can sell. c. Bill would charge $4.

(b) Assume that the individual’s utility function for profit is U(X) = X – 0.5X^2. Calculate the expected utility of each project and identify the preferred project according to his criterion.

5. Estimate the effect on income of each of the options Flores has suggested if Wu estimates them as follows:

a. What happens to the value of the option if you change the range from 20% to 10%?

To maximize profits, Subway at Singing River Hospital main focus is to establish individual prices in which marginal cost equal marginal revenue (McConnell, Brue & Flynn, 2009). It is clear that customers will pay more for sandwiches with more meat rather than a sandwich will less meat in it. In the sandwich business, sandwiches with single meats are priced at five dollars each. On the other hand we will raise the price of single meat sandwiches to see if it can hold the demand. For the simple fact, as sales increase we must account for labor cost, discounts, and other variable cost. For example, if 20 sandwiches are sold we will profit a hundred dollars, 40 sandwiches, profit would be 200 dollars, 60 sandwiches, profit will be 300 dollars, and for 80 sandwiches sold the profit will be 400 dollars. The marginal profit determine as each incremental increase in sales. Marginal profit is defined as the change for each sandwich sold (McConnell, Brue & Flynn, 2009). Following the example above we have determined a unit is an increment of 20 sandwiches. To increase sales from zero to 20 sandwiches the marginal profit is 100 dollars. To increase sells from 20 to 40 sandwiches, marginal profit would consist of 50 dollars. Raising sales from 40 to 60 sandwiches the marginal profit

Appalachian Coal Mining believes that it can increase labor productivity and, there- fore, net revenue by reducing air pollution in its mines. It estimates that the marginalcost function for reducing pollution by installing additional capital equipment is MC 40P where P represents a reduction of one unit of pollution in the mines. It also feels that for every unit of pollution reduction the marginal increase in revenue (MR) isMR 1,000 10P How much pollution reduction should Appalachian Coal Mining undertake?

1. A change in all of the following will cause a shift in the consumption function, EXCEPT:

Bridget’s total budget is $80. If she purchases 3 bottles of wine for $30, she would gain 150 units. Spending $50 on cheese would buy her 12.5 pounds of cheese, giving her 500 units of utility. That would give Bridget 650 total units under the 3 bottles of wine option. At 4 bottles of wine, Bridget would have around 200 units of utility in wine and 400 in cheese for only 600 total units. Considering these options, the four bottles of wine consumption choice is not the utility maximizing choice. The three bottle plan gives her more units.

At the optimal level, MRS = slope of budget line x2 = x1 x2 = p1 p2

When running a business, calculating margins is an essential component. Margins not only can help us figure out what our total revenue will be, they also help us decide if we need to expand as a business, stay where we are, or try to downsize. Of course other factors can be put into this as well; did prices of the goods and services we provide go up? Does this mean we should hire more people? When is a good time to hire more people? These are all things I’ve learned from this module’s reading material.