What is the level of profit maximising output

Reference no: EM13119784

Question

(a) Complete the table. State when the coefficient is elastic, inelastic or unitary elastic.

Price	Quantity demanded	Total Revenue	Elasticity coefficient	Demand elasticity
$110	0
$100	50
$90	100
$80	150
$70	200
$60	250
$50	300
$40	350
$30	400
$20	450
$10	500
$0	550

(i) Using the table above draw the diagrams illustrating price elasticity of demand ranges and total revenue curve related to the price elasticity demand ranges.

(ii) Briefly explain whether you advise the firm to raise the price from $30 to $40. Provide numerical justification of your advice.

(iii) Briefly explain whether you advise the firm to raise the price from $70 to $80. Provide numerical justification of your advice.

(b) The table below shows the number of workers and output data.

Number of workers	Total product	Marginal product	Marginal returns
0	0
1	8
2	18
3	25
4	29
5	30

(i) Complete the table.

(ii) Using the numbers from the table above, draw a diagram showing total output, marginal products curves and identify marginal returns.

(iii) Consider the following short run average total cost (SRATC) curves. Calculate the long run average cost (LRAC). Draw the diagram showing the relationship between three SRATCs and the LRAC curve.

Output	SRATC1	SRATC2	SRATC3	LRAC
0
1	50
2	34
3	24
4	19	50
5	30	30
6	48	18
7		8
8		15	50
9		34	34
10		50	20
11			12
12			18
13			30
14			50

(iv) Draw the long run average costs curve (based on the data provided) assuming an infinite number of plant sizes. State your assumptions.

Q	P	TC	MC	TR	MR
0	110	10
1	100	35
2	90	65
3	80	70
4	70	110
5	60	155
6	50	205
7	40	270
8	30	370

i) Using the marginal approach to maximise profits, find the price that monopolist would charge to maximise its profit. What is the level of profit maximising output?

Reference no: EM13119784

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