Suppose the doll company American Girl has an inverse demand curve of P = 150 – 0.25Q, where Q measures the quantity of dolls per day and P is the price per doll. There production function equals Q = L^0.5K^0.5, they pay wages of 35 and they pay capital rates of 140. What is their daily long run profit at the profit-maximizing output level?

Suppose the doll company American Girl has an inverse demand curve of P = 150 – 0.25Q, where Q measures the quantity of dolls per day and P is the price per doll. There production function equals Q = L^0.5K^0.5, they pay wages of 35 and they pay capital rates of 140. What is their daily long run profit at the profit-maximizing output level?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter9: Market Structure And Long-run Equilibrium

Section: Chapter Questions

Problem 1MC

See similar textbooks

Similar questions

The profit function for a firm is given by n(q) = -q³ + 300q² – 10,800q – 4,000. a. Is the firm operating in the short-run or the long-run? How do you know? b. What is the output that maximizes profit for the firm? c. What is the maximized level of profit? d. In Excel or other software, provide a graph of the above profit function to confirm your mathematical results found above. Use output amounts ranging from 1 to 200. Put profit on the vertical axis and output on the horizontal axis.
The graph below shows a particular firms marginal revenue (mr) marginal cost (mc) and average total cost (atc) curves, where the market is competitive. Suppose that a new management team is brought in and that this team is initially less concerned about maximizing profits than it is simply about making a profit. What range of production quantities will allow the firm to operate while earning a profit? Give you're answer by dragging the qmin to Qmax lines into their correct positions. The output will need to lie somewhere between those limits.
At what output rate does the firm maximize profit or minimize loss?
a) Suppose in the short-run, the amount of machines she has is fixed at 27. How many mixers should she use? How many baklavas will she produce? How much profit will she make? Using an isoprofit line, as well as the production function, draw a diagram of your solution and label all the intercept and slopes b) In the long-run, how many mixers should she use? How many machines? How many baklavas will she make? c) Suppose that the government decides to provide a $1 subsidy per mixer. What is the profit-maximizing amount of each input to use now?
TOTAL COST AND REVENUE (Dollars) -25 Suppose Lorenzo runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a price-taker market, and the market price is $10 per teddy bear. The following graph shows Lorenzo's total cost curve. Use the blue points (circle symbol) to plot total revenue, and the green points (triangle symbol) to plot profit for the first seven teddy bears that Lorenzo produces, including zero teddy bears. 125 Total Cost 100 Total Revenue 75 -50 1 2 5 6 QUANTITY (Teddy bears) Profit Calculate Lorenzo's marginal revenue and marginal cost for the first seven teddy bears he produces, and plot them on the following graph. Use the blue points (circle symbol) to plot marginal revenue and the orange points (square symbol) to plot marginal cost. ? COSTS AND REVENUE (Dollars per teddy bear) 2 3 5 QUANTITY (Teddy bears) Marginal Revenue Marginal Cost Lorenzo's profit is maximized when he produces teddy bears. When he does this, the marginal…
Suppose that the market for black sweaters is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. (? 50 45 40 35 30 ATC 25 20 15 AVC 10 MC 8 10 2 4 12 14 16 18 20 QUANTITY (Thousands of sweaters) PRICE (Dollars per sweater)
50 45 40 35 30 ATC 25 20 15 AVC 10 MC 2 4 8 10 12 14 16 18 20 QUANTITY (Thousands of shirts) PRICE (Dollars per shirt)
Homework (Ch 14) 5. Profit maximization and shutting down in the short run Suppose that the market for microwave ovens is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. 100 90 80 ATC 60 50 40 30 AVC 20 MC 10 20 25 30 35 40 45 50 10 15 QUANTITY (Thousands of ovens) PRICE (Dollars per oven)
Economics Question
What happens to a competitive firm whose cost function exhibits decreasing marginal cost everywhere? Construct a concrete cost function of this type and carry out the search for the profit-maximizing output.
Consider the market for ice cream. Suppose that this market is perfectly competitive. The cost structure of the typical ice cream producer is as follows. Average total cost is equal to 50 1 1 ATC(Q) +÷Q, average variable cost is equal to AVC(Q) =;Q, and marginal cost is equal to 2 MC(Q) = Q. Now, suppose that a new scientific study comes out that shows that soil pollution from rock salt (a key input for making ice cream) is extremely hazardous to human health. In response, the government decides to impose harsh re-zoning restrictions on any land once used for making ice cream. This reduces the market rent for land used to make ice cream, which in turn lowers the opportunity cost of operating an ice cream factory. This reduction in the opportunity cost of capital causes the total fixed cost of ice cream production to fall to 32, but there is no change to variable cost. Give formulas for the typical ice cream producer's new average total cost curve ATC(Q) and marginal cost curve MC(Q).
Using the following table, for each price level, calculate the optimal quantity of units for the firm to produce. Using the data from the graph to determine the firm’s total variable cost, calculate the profit or loss associated with producing that quantity. Assume that if the firm is indifferent between producing and shutting down, it will choose to produce. (Hint: Select purple points [diamond symbols] on the graph to receive exact average variable cost information.) Price Quantity Total Revenue Fixed Cost Variable Cost Profit (Dollars per instant pot) (Instant pots) (Dollars) (Dollars) (Dollars) (Dollars) 25.00 1,600,000 70.00 1,600,000 100.00 1,600,000 If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firm's fixed cost is $1,600,000 per day. In other words, if it shuts down, the firm would suffer losses of $1,600,000 per day until its fixed…