Logout . Practice problem Jack and Jill are business partners. Together they run

Question

Logout . Practice problem Jack and Jill are business partners. Together they run a successful outdoor enture company "Up a Hill" which is currently earning positive profits.They are currently in a disagreement of what direction to take their business and have brought you in as an economic consultant. . At most, Jack and Jill can go on seven excursions a week, and each additional excursion earns them $1000. They have fixed costs of $350, and estimate that the additional cost of the first excursion is s6o0. The cost of each additional trips after the first goes up by $100 (eg: additional cost of 2nd trip is s700, 3rd trip is $800, etc.). ."Up a Hill" currently goes on 3 trips a week. Jack thinks that they should not increase the number of trips because their company is already earning profits. Jill thinks they should increase their trips to five a week. Who is correct and why?

Explanation / Answer

Jill is correct because at trips = 3. marginal revenue is greater than 3. S theris a scope to increase profit. But after five marginal cost will be greater than Marginal revenue . The equilibrium is where MR = MC. So the optimal trips are 5

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