Use the following spreadsheet to answer the following questions: 3. How many pap
ID: 1215513 • Letter: U
Question
Use the following spreadsheet to answer the following questions:
3. How many papers should the manager of the El Dorado Star print and sell daily? Explain your choice in 25 – 50 words.
4. How much profit (or loss) will the Star earn at the level of output you chose in #3?
5. At the profit-maximizing output level you reported in question 3, is the El Dorado Star making the greatest possible amount of TOTAL REVENUE? Explain in 50-100 words why or why not.
6. What is total fixed cost for Star?
7. If Star's total fixed costs were to DOUBLE for some reason, how much profit (or loss) does Star make when fixed costs are doubled?
8. Given your answer in #7, should the Star shut down, why or why not? If they should continue to produce, how many papers should they produce? Explain your choice in 25-50 words.
Number of newspapers per day (Q)
Total revenue (including advertising revenues) per day (TR)
Total cost per day (TC)
MC
MR
PROFIT=TR-TC
0
0
3500
0
-3500
1000
3250
3600
0.1
3.25
-350
2000
4250
3700
0.1
1
550
3000
4750
3860
0.16
0.5
890
4000
5000
4020
0.16
0.25
980
5000
5200
4300
0.28
0.2
900
6000
5375
4500
0.2
0.175
875
7000
5400
4590
0.09
0.025
810
8000
5375
4810
0.22
-0.025
565
9000
5225
5050
0.24
-0.15
175
Number of newspapers per day (Q)
Total revenue (including advertising revenues) per day (TR)
Total cost per day (TC)
MC
MR
PROFIT=TR-TC
0
0
3500
0
-3500
1000
3250
3600
0.1
3.25
-350
2000
4250
3700
0.1
1
550
3000
4750
3860
0.16
0.5
890
4000
5000
4020
0.16
0.25
980
5000
5200
4300
0.28
0.2
900
6000
5375
4500
0.2
0.175
875
7000
5400
4590
0.09
0.025
810
8000
5375
4810
0.22
-0.025
565
9000
5225
5050
0.24
-0.15
175
Explanation / Answer
Profit maximization occurs where MR = MC. MR and MC are approximately same at 4000 and 5000 units. But profit is maximized at 4000 units.
3. Firm will sell 4000 units daily
4. Firm earns 980 profit
5. No, at 4000 units firm is earning 5000 while maximum revenue 5400 is earned 7000 units. Firm earns maximum revenue when marginal revenue is zero. MR is close to zero i.e. 0.025 at 7000 units. Also profit maximization situation is where MR = MC not MR = 0.
6. TC = TFC + TVC
TVC = Integration of MC and TC is given.
TVC = MCxQ => 0.1 x 1000 = 100
TFC = TC - TVC
= 3600 - 100 => 3500
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