In the beach city of Santa Barbara, California, there are seven bathing suit sto
ID: 1114663 • Letter: I
Question
In the beach city of Santa Barbara, California, there are seven bathing suit stores, each with the same schedule of costs and each facing an identical demand curve. Swim N Style is a typical store:
Suits sold (per hour) Price Total Cost
1 $68 $70
2 66 80
3 64 85
4 62 90
5 60 100
6 58 115
7 56 136
8 54 164
9 52 200
10 50 245
a) Calculate total revenue, marginal revenue, marginal cost, and average cost at each level of sales for the store.
b) If Swim N Style is a profit maximizer, what number of suits will it sell per hour? What will its price and profit be?
c) How can you tell that the bathing suit market in Santa Barbara is not in long-run equilibrium? What will happen because it is out of equilibrium?
Explanation / Answer
Average Costs - 70 / 1 = 70
80/2 = 40
85/3 = 23.3
90/4 = 22.5
100/5 = 20
115/6 = 19
136/ 7 = 19.42
164/8 = 20.5
200/9 = 22.22
245/10 = 24.5
b). It will sell suits where MR = MC, which is the profit maximizing position of a firm in a competitive market.
In this case, he will choose to sell 9 units of suits at price 52.
Profits = Revenue - Costs = (9*52) - 200 = 268
It is not in a long run equilibrium because in the long run equilibrium, the economic profits of the firm should be zero. It will continue to sell his swim suits until the economic profits are zero.
Suits Sold Price Cost Total Revenue Marginal Revenue Marginal Cost 1 68 70 68 * 1 = 68 68 70 2 66 80 66 * 2 = 132 64 10 3 64 85 64 * 3 = 192 60 5 4 62 90 62 * 4 = 248 56 5 5 60 100 60 * 5 = 300 52 10 6 58 115 58 * 6 = 348 48 15 7 56 136 7 * 56 = 392 44 21 8 54 164 8 * 54 = 432 40 28 9 52 200 9 * 52 = 468 36 36 10 50 245 10 * 50 = 500 32 45Related Questions
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