This website uses cookies to ensure you have the best experience. Learn more

Total Revenue And Price Elasticity Essay

587 words - 3 pages

A monopoly firm faces a demand curve given by the following equation: P = $500 − 10Q, where Q equals quantity sold per day. Its marginal cost curve is MC = $100 per day. Assume that the firm faces no fixed cost. You may wish to arrive at the answers mathematically, or by using a graph (the graph is not required to be presented), either way, please provide a brief description of how you arrived at your results.
a)    How much will the firm produce? b)    How much will it charge? c)    Can you determine its profit per day? (Hint: you can; state how much it is.) d)    Suppose a tax of $1,000 per day is imposed on the firm. How will this affect its price? e)    How would the $1,000 per day tax its output per day? f)    How would the $1,000 ...view middle of the document...

  Therefore MR = 500+ 2x -10Q iii) the firm will produce where MR = MC = 500-20Q=100 solving for Q we get 20b)     How much will it charge? The demand equation is P=500-10QSubstituting Q in the equation we get P=500-(10x20) = 300c)     Can you determine its profit per day? (Hint: you can; state how much it is.) Marginal cost is constant hence MC=AVC.MC=100=TC=MC x Q = 100x20=2000Profits = TR-TC TR= PQ= 300 x 20 = $6000 Profit = 6000-2000=$4000d)     Suppose a tax of $1,000 per day is imposed on the firm. How will this affect its price? i) Increase in tax reduces the output and raises the price. ii) P = $500 − 10Qiii) From (e) below, quantity is 15iv) Therefore, P=500-(10x15) = $350e)     How would the $1,000 per day tax its output per day? Tax of $1000 reduces profit to $3000 from $4000If Q of 20 produces profit of $4000, then $3000 will be produced by; (20x3000)/4000 =15.Therefore, output reduces to 15f)     How would the $1,000 per day tax affect its profit per day? P=TR-TCP= (15 x 350) - (100x15) = 5250-1500 = $3750Reduction in profit is $(4,000-3750) = $250g)     Now suppose a tax of $100 per unit is imposed. How will this affect the firm’s price? i) Tax of $100 reduces profit to $(4000-100) =$3900ii) If quantity 20 produces profit of $4000, then $3900 is produced by (3900x20)/4000 = 19.5...

Profit maximizing firm will produce where mc =mr 2 a monopoly faces a mr curve with the twice the slope of the demand curve hence mr = 500+ 2x -10Q 3 therefore they will produce where mr = mc = 500-20Q=100 solve for Q . we get 20 4 to find the price plug Q=20 to the Demand equation P = 500 -10 x 20 = 300 5 Mc is constant therefore MC=avc therefore 100x 20 = tc = 2000 6 profits tr-tc tr= 300 x 20 = 6000 6000-2000=4000

Other Papers Like Total Revenue and Price Elasticity

Economic Chapter 7-4 Essay

1490 words - 6 pages Chapter 7: Elasticity 1 What you will learn in this chapter 1. Define and measure elasticity of demand and elasticity of supply. 2. Determine the relationship between demand elasticity and total revenue. 3. Understand the factors that determine elasticity of demand and elasticity of supply. Punchline • Imagine that some event drives up the price of gasoline (think about two examples) • How would consumers respond to the higher price? â

Economics Elasticity Solutions Essay

3523 words - 15 pages ) The expenditure on the good is small relative to one's budget. Answer: A Comment: Recurring Diff: 2 Page Ref: 174/174 Topic: Availability of Close Substitutes Objective: LO2: Understand the determinants of the price elasticity of demand. AACSB: Reflective Thinking Special Feature: None 6.3 The Relationship between Price Elasticity of Demand and Total Revenue 1) Total revenue equals A) price per unit


915 words - 4 pages coefficient is positive or >0 the goods are substitutes. When the coefficients are negative or 1 quantity demanded changes by a higher percentage than price does/ total revenue decreases(McConnnell,Brue 2011). 2. Inelastic range-or relatively inelastic-If demand is inelastic with respect to price, an increase in price will result in an increase in revenue, and a decrease in price will result in a decrease in revenue Ed< quantity demanded

Economics Supply and Demand

3031 words - 13 pages will increase or decrease. The perfectly inelastic demand curve or slope is vertical and as such for a given quantity, the purchasers will buy at any price. The characteristic of perfectly inelastic demand is the fact that there are no substitutes or complements so purchasers cannot choose and alternate product. Task G Total revenue is calculated by multiplying the demand by the price of a product. Price elasticity of demand and total

Week 2 Econ Questions

540 words - 3 pages 11 percent increase in advertising. If the price elasticity of demand is -1.5 and the advertising elasticity of demand is +0.6, would you expect an increase or decrease in total revenues? Price: MR=change TR(price)/change Q (price) We know only Ed so we can compute the change Quantity: -0.06 MR=0.04/-0.06= -0.66 so Marginal Revenue is less than 1, so there will be decrease in total revenues. MR=change TR (advertising)/Change Q (advertising

Ch 2 Bussiness and Managment

1375 words - 6 pages . The percentage change in quantity is less than the percentage change in price, making demand inelastic. 4-3 Calculate total-revenue data from the demand schedule in question 2. Referring to changes in price and total revenue, describe the total revenue test for elasticity. See the graph. Total revenue data, top to bottom: $5; $8; $9; $8; $5. When demand is elastic, price and total revenue move in the opposite direction. When demand is

EGT! Task 4

1849 words - 8 pages either use the Price Elasticity of Demand equation, or we can use the Total Revenue test. When price goes down and total revenue increases this indicates the elastic demand, when price and total revenue both decrease this indicates the inelastic demand is and the unit elastic demand is where price decreases and total revenue remains the same. In this graph the elastic portion of the demand curve is where prices is between 80.00 and 50.00

Eco 550 Week 3 Assignment 1

1494 words - 6 pages demand Price elasticity is -0.79.  There is negative relationship between price and demand. However, the ratio is less than 1, which means that an increase in the price of the food leads to the fall of the quantity demanded by less than proportionate amount. Therefore, an increase in the price may lead to a higher net revenue as price x quantity in this case may be higher than the current price x quantity amount. Cross Price elasticity - in

Egt1 Task2

856 words - 4 pages increase revenue. Where total revenue remains at 200 with a corresponding quantity range of 4-5 we have unit-elastic demand. Finally, the total revenue range of 200-0 with a corresponding quantity range of 5-9 is inelastic. At this range the demand is too small with respect to corresponding price and decreases revenue.

Demand Elasticity

4724 words - 19 pages the relationship between price and quantity demanded (i.e., the law of demand), the two effects affect total revenue in opposite directions. But in determining whether to increase or decrease prices, a firm needs to know what the net effect will be. Elasticity provides the answer: The percentage change in total revenue is equal to the percentage change in quantity demanded plus the percentage change in price. (One change will be positive, the


1126 words - 5 pages 5 (Apr 14) (a) Explain FOUR (4) determinants of price elasticity of demand that make the demand for some goods elastic and the demand for other goods inelastic. Provide each with an example. (12 marks) (b) The product manager of Dumex milk is wondering whether or not to cut the price of the milk to increase the total revenue from the sales. Explain clearly how knowledge of the elasticity of demand for Dumex milk can help the manager

Related Essays

Supply And Demand And Price Elasticity Paper

1000 words - 4 pages Supply and Demand and Price Elasticity Paper ECO/212 The laws of economics control the decisions made in everyday life. The products people decide to purchase, and do without, are controlled by the laws of supply and demand. There are different factors that control the shifts and movements of supply and demand. The desire for a product is most closely related to price, and these desires bring markets towards equilibrium. When

I. The Importance Of Price Elasticity Of Demand And Cross Elasticity Of Demand

801 words - 4 pages than that in price => price is raised, the total revenue falls, and vice versa. * When Ed is − ∞, any increase in the price will lead to demand drop to zero => the total revenue falls to zero. 2. Cross elasticity of demand Cross-price elasticity of demand measures the percentage change in demand for the first good that occurs in response to a percentage change in price of the second good. Two goods that complement each other

Supply, Demand And Price Elasticity Essay

955 words - 4 pages Maintenance Center runs as a functional organization. This organization tends to be customer-based, and as organic as possible. Monetary Resources Monetary resources are critical in any organization. Although this organization is an entity of the government, money is as vital as ever. Using the MSMO vehicle allows the organization to provide more work, at a competitive price. NASSCO has been awarded the contract to be the prime contractor to

Supply And Demand And Price Elasticity Paper

811 words - 4 pages Economic DecisionsPersonal income is "total amount of money Americans have to spend after taxes relative to overall output of goods and services has hit the lowest level in 25 years". (Panzner, ¶ 2) There are four basic principles of individual decision making. These four basic principles are People Face Trade-offs, The Cost of Something Is What You Give Up to Get It, Rational People Think at the Margin, and People Respond to Incentives