MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
9th Edition
ISBN: 2810022149537
Author: Baye
Publisher: MCG
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Question
Chapter 11, Problem 17PAA
To determine
The problems that occurs when both divisions maximize their separate profits and the profit maximization price of the company.
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The Poster Bed Company believes that its industry can best be classified as monopolistically competitive. An analysis of the demand for its canopy bed has resulted in the following estimated demand function for the bed:P = 1760 - 12QThe cost analysis department has estimated the total cost function for the poster bed asTC = (1/3)Q3 - 15Q2 + 5Q + 24,000a. Calculate the level of output that should be produced to maximize short-run profits. b. What price should be charged? c. Compute total profits at this price-output level. d. Compute the point price elasticity of demand at the profit-maximizing level of output. e. What level of fixed costs is the firm experiencing on its bed production? f. What is the impact of a $5,000 increase in the level of fixed costs on the price charged, output produced, and profit generated?
Robert’s New Way Vacuum Cleaner Company is a newly started small business that produces vacuum cleaners and belongs to a monopolistically competitive market. Its demand curve for the product is expressed as Q = 5000 – 25P where Q is the number of vacuum cleaners per year and P is in dollars. Cost estimation processes have determined that the firm’s cost function is represented by TC = 1500 + 20Q + 0.02Q2. Show all of your calculations and processes. Describe your answer for each question in complete sentences, whenever it is necessary.
What are the profit-maximizing price and output levels? Explain them and calculate algebraically for equilibrium P (price) and Q (output). Then, plot the MC (marginal cost), D (demand), and MR (marginal revenue) curves graphically and illustrate the equilibrium point.
How much economic profit do you expect that Robert’s company will make in the first year?
Do you expect this economic profit level to continue in subsequent years? Why or why not?
The Poster Bed Company believes that its industry can best be classified as monopolistically competitive. An analysis of the demand for its canopy bed has resulted in the following estimated demand function for the bed:
P=1,760−12Q�=1,760−12�
The cost analysis department has estimated the total cost function for the poster bed as
TC=Q33−15Q2+5Q+24,000TC=�33−15�2+5�+24,000
Short-run profits are maximized when the level of output is
and the price is
.
The total profit at this price-output level is
.
The point price elasticity of demand at the profit-maximizing level of output is .
The level of fixed costs the firm is experiencing on its bed production is
.
What is the impact of a $5,000 increase in the level of fixed costs on the price charged, output produced, and profit generated?
Increase
No change
Decrease
Price Charged
Output Produced
Profits Generated
Chapter 11 Solutions
MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
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