The Percent Change of Price
4.4ai.
The price elasticity of demand is given to calculate the new price. The fruit stall has 100 peaches initially but 10 peaches are rotten. It means the number of remaining peaches is 90 units. Therefore, the question provides the factors such as initial quantity, new quantity, initial price which are 100, 90, 1 respectively.
Let the new price be x.
Therefore, we will choose $1.2 per unit as the new price to sell the remaining peaches.
4.4aii.
Case 1: If I do not discover the rotten peaches, the quantity demanded is 100. Case 2: If I discover the rotten peaches, the quantity demanded is 90. It is the fact that the total costs in these two cases remain the same so revenue is the main point to determine which cases is better in terms of profitability. Overall, the total profit in case 2 is greater than that in case 1 so it is good to discover that 10 of peaches are rotten.
4.4bi
The short-run production means there are some factors such as the variable cost and fixed cost involved in an industry while the long-run production means there is only variable cost involved in an industry. The question has mentioned that this firm rent a factory and a machine so the fixed cost is involved. Therefore, Caleb’s firm is operating in the short-run production.
4.4bii
The average cost of production 1 unit of Y
4aiii
Total cost of producing 2 unit of Y
Marginal cost of producing the 2nd unit of Y
4aiv.
The question mentions that the Caleb’s firm is monopoly so we can use the equation Marginal revenue = Marginal cost to calculate the profit-maximizing output level.
To measure the marginal revenue and the marginal cost, the following formulas are used.
It is necessary to calculate all cases of output Y to find out the answer. There is a list of marginal revenue and marginal cost in the following.
Raw material X
Output Y
Total revenue
Marginal
revenue
Marginal cost
0
0
0
1000
1
16000
1500
2
31000
15000
5000
2500
3
45000
14000
The price elasticity of demand is given to calculate the new price. The fruit stall has 100 peaches initially but 10 peaches are rotten. It means the number of remaining peaches is 90 units. Therefore, the question provides the factors such as initial quantity, new quantity, initial price which are 100, 90, 1 respectively.
Let the new price be x.
Therefore, we will choose $1.2 per unit as the new price to sell the remaining peaches.
4.4aii.
Case 1: If I do not discover the rotten peaches, the quantity demanded is 100. Case 2: If I discover the rotten peaches, the quantity demanded is 90. It is the fact that the total costs in these two cases remain the same so revenue is the main point to determine which cases is better in terms of profitability. Overall, the total profit in case 2 is greater than that in case 1 so it is good to discover that 10 of peaches are rotten.
4.4bi
The short-run production means there are some factors such as the variable cost and fixed cost involved in an industry while the long-run production means there is only variable cost involved in an industry. The question has mentioned that this firm rent a factory and a machine so the fixed cost is involved. Therefore, Caleb’s firm is operating in the short-run production.
4.4bii
The average cost of production 1 unit of Y
4aiii
Total cost of producing 2 unit of Y
Marginal cost of producing the 2nd unit of Y
4aiv.
The question mentions that the Caleb’s firm is monopoly so we can use the equation Marginal revenue = Marginal cost to calculate the profit-maximizing output level.
To measure the marginal revenue and the marginal cost, the following formulas are used.
It is necessary to calculate all cases of output Y to find out the answer. There is a list of marginal revenue and marginal cost in the following.
Raw material X
Output Y
Total revenue
Marginal
revenue
Marginal cost
0
0
0
1000
1
16000
1500
2
31000
15000
5000
2500
3
45000
14000