The following data represent a firm serving a specific transportation market. To
ID: 1191951 • Letter: T
Question
The following data represent a firm serving a specific transportation market.
Total Output Total Revenue Total Cost
0 $0 $1000
1 $1700 $1000
2 $3300 $2800
3 $4800 $3500
4 $6200 $4000
5 $7500 $4500
6 $8700 $5200
7 $9800 $6000
8 $10800 $7000
9 $11700 $9000
a. What price maximizes revenue?
b. What price maximizes profit?
c. What is fixed cost?
d. This firm faces a rival that cuts its revenue significantly. The firm has decided to undertake predatory pricing to drive the other firm out of business. The other firm has a cost structure that looks like the following:
Total Cost $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000
Total Output 0 1 2 3 4 5 6
What price would drive the firm out of business? How much would it cost the incumbent firm to drive the rival out of the market? Could the firm raise the price to recoup the losses?
Explanation / Answer
TR = P*Q. SO P =TR/Q. With this we calculated Price. profits = TR-TC.
a). Price maximises revenue is $1300 ($11700 revenue).
b). Price that maximises profit is $1400 ($3800 profit).
c). Fixed cost is $1000. Fixed cost is the cost incurred at 0 level of output.
OUTPUT TR P TC PROFITS 0 0 0 1000 -1000 1 1700 1700 1000 700 2 3300 1650 2800 500 3 4800 1600 3500 1300 4 6200 1550 4000 2200 5 7500 1500 4500 3000 6 8700 1450 5200 3500 7 9800 1400 6000 3800 8 10800 1380 7000 3700 9 11700 1300 9000 2700Related Questions
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