Supply and Demand and Total Profit

945 Words Oct 6th, 2011 4 Pages
Question 6
Use Figure 6.5 to determine:

a) How many baskets of fish should be harvested at market prices of i. $9?

The farmer should harvest 3 baskets in order to gain the maximum profit.

ii. $13?

The farmer should harvest 4 baskets in this case to maximize profits.

iii. $17?

The farmer should maximize profits by harvesting 5 baskets at $17.

b) How much total revenue is collected at each price?
Total revenue = price x quantity

i. Total Revenue = $9 x 3 = $27 ii. Total Revenue = $13 x 4 = $52
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The graph for the typical catfish farmer will be the same except with lower quantities.

Q8: Graph the market behavior described in the Headline on p. 131.

The behavior described in the Headline on p. 131 is one in which numerous firms have entered the marketplace and driven the price of the product down. The graph below illustrates what happens to the market supply curve as new firms enter the industry. The curve shifts to the right which illustrates a drop in price.

Q9: (a) A book salesman declares, “When the unit price is $5, I can sell 100 books; when the unit price is $6, I can only sell 90 books.” Given the information, please determine whether the demand on book is elastic or not. (5%)

Elasticity (E) = percentage change in quantity demanded (Qd)/ percentage change in price (Pc)

E = Qd/ Pc
E = -10%/ 20% = -0.5

Because the elasticity is less than one, the demand on the book is inelastic.

(b) The same book salesman learned the price elasticity of demand on a particular book is −2. If the salesman cuts the price by 10%, how many percent will increase on the total sales (revenue)? (5%)

E = -2 = Qd/ Pc
Pc = -10%
-2 = Qd/ -10%
-10% * -2 = Qd = 20%

The salesman should expect a 20% increase in total sales.

Q10: Mr. Rich still has money in pocket to spend. If only two products are available to him, avocado (A) and broccoli (B), the current marginal utility (MU) and price per pound (P) are as the following: MUA=8,

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