Elixir Spring produces a unique and highly prized mineral water. The firm’s tota

Question

Elixir Spring produces a unique and highly prized mineral water. The firm’s total fixed cost is $5 a day, and its marginal cost is $1. The table below shows the demand schedule for Elixir water.

5. Elixir Spring produces a unique and highly prized mineral water. The firm's total fixed cost is $5 a day, and its marginal cost is $1. The table below shows the demand schedule for Elixir water Price Quantity Total Revenue Marginal Revenue dollars per bottle) (bottles per day) 10 10 a. Complete the total revenue and marginal revenue schedules b. Calculate Elixir's profit maximizing output__proft b. Calcudate Elisir'srofit maiizing output , profit maximizing and economic profit_ price What is the elasticity of demand for Elixir water at the profit maximizing quantity?. c.

Explanation / Answer

Working notes:

(1) Total revenue = P x Q

(2) Marginal Revenue = Change in TR / Change in Q

(3) Total cost, TC = FC + (MC x Q) = 5 + Q [Since FC = 5, MC = 1]

(4) Profit = TR - TC

(5) Elasticity of demand = % Change in Q / % Change in P

So,

(a)

(b)

Profit-maximizing output = 4

Price = 6

Economic profit = 15

(c) When P = 6, Q = 4

When P = 5, Q = 5

% Change in Q = (5 - 4) / 4 x 100 = 25%

% Change in P = (5 - 6) / 6 x 100 = - 16.67%

Elasticity of demand = 25% / - 16.67% = - 1.5

P Q TR MR TC Profit 10 0 0 5 -5 9 1 9 9 6 3 8 2 16 7 7 9 7 3 21 5 8 13 6 4 24 3 9 15 5 5 25 1 10 15 4 6 24 -1 11 13 3 7 21 -3 12 9 2 8 16 -5 13 3 1 9 9 -7 14 -5 0 10 0 -9 15 -15

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.