In a Monopolistic Competitive market, a firm is a price setter, but since there
ID: 1125116 • Letter: I
Question
In a Monopolistic Competitive market, a firm is a price setter, but since there are many close substitutes to the product, it needs to spend more money on advertisement in order to differentiate its brand from other brands. If Fixed Costs remains at $1,000.00 for Nike and $5,000 for Reebok, where are the firms’ new profit maximization point, break-even point, and shut-down point with 10% used for marketing costs?
Graph the D, MR, MC, ATC, AFC, and AVC on another graph for both Nike and Reebok. Calculate the total revenue, total profit, and total costs on the graph.
Q
P=D
TC
New TC
TR
ATC
TVC
AVC
AFC
MC
MR
0
$399.99
$1,000
10
$379.99
$3,000
20
$359.99
$4,000
30
$339.99
$5,000
40
$319.99
$7,000
50
$299.99
$9,500
60
$269.99
$12,000
70
$239.99
$15,000
80
$199.99
$18,000
90
$149.99
$22,000
100
$99.99
$25,000
Nike
Q
P=D
TC
New TC
TR
ATC
TVC
AVC
AFC
MC
MR
0
$399.99
$5,000
10
$379.99
$5,500
20
$359.99
$6,000
30
$339.99
$7,100
40
$319.99
$9,000
50
$299.99
$10,500
60
$269.99
$12,000
70
$239.99
$13,500
80
$199.99
$15,000
90
$149.99
$17,000
100
$99.99
$17,500
Reebok
Q
P=D
TC
New TC
TR
ATC
TVC
AVC
AFC
MC
MR
0
$399.99
$1,000
10
$379.99
$3,000
20
$359.99
$4,000
30
$339.99
$5,000
40
$319.99
$7,000
50
$299.99
$9,500
60
$269.99
$12,000
70
$239.99
$15,000
80
$199.99
$18,000
90
$149.99
$22,000
100
$99.99
$25,000
Explanation / Answer
Answer:
Compute both the tables by using the following information:
The computation for Rebook is done below. Profit is maximum when it produces 50 units. The break even point lies between 10 to 20 units and shut down point (Profit turn negative) lies between 80 to 90 units.
Computation of variables for Rebook
Q
P
TC
TR
TP
ATC
TVC
AVC
AFC
MC
MR
Profit
0
399.99
5000
0.00
0
-5000
10
379.99
5500
3799.90
10
550.00
500.00
50.00
500.00
50.00
379.99
-1700.1
20
359.99
6000
7199.80
20
300.00
1000.00
50.00
250.00
50.00
339.99
1199.8
30
339.99
7100
10199.70
30
236.67
2100.00
70.00
166.67
110.00
299.99
3099.7
40
319.99
9000
12799.60
40
225.00
4000.00
100.00
125.00
190.00
259.99
3799.6
50
299.99
10500
14999.50
50
210.00
5500.00
110.00
100.00
150.00
219.99
4499.5
60
269.99
12000
16199.40
60
200.00
7000.00
116.67
83.33
150.00
119.99
4199.4
70
239.99
13500
16799.30
70
192.86
8500.00
121.43
71.43
150.00
59.99
3299.3
80
199.99
15000
15999.20
80
187.50
10000.00
125.00
62.50
150.00
-80.01
999.2
90
149.99
17000
13499.10
90
188.89
12000.00
133.33
55.56
200.00
-250.01
-3500.9
100
99.99
17500
9999.00
100
175.00
12500.00
125.00
50.00
50.00
-350.01
-7501
The computation for Nike is done below. Profit is maximum when it produces 40 units. The break even point lies between 0 to 10 units and shut down point (Profit turn negative) lies between 70 to 80 units.
Computation of variables for Nike
Q
P
TC
TR
TP
ATC
TVC
AVC
AFC
MC
MR
Profit
0
399.99
1000
0.00
0
-1000
10
379.99
3000
3799.90
10
300.00
2000.00
200.00
500.00
200.00
379.99
799.9
20
359.99
4000
7199.80
20
200.00
3000.00
150.00
250.00
100.00
339.99
3199.8
30
339.99
5000
10199.70
30
166.67
4000.00
133.33
166.67
100.00
299.99
5199.7
40
319.99
7000
12799.60
40
175.00
6000.00
150.00
125.00
200.00
259.99
5799.6
50
299.99
9500
14999.50
50
190.00
8500.00
170.00
100.00
250.00
219.99
5499.5
60
269.99
12000
16199.40
60
200.00
11000.00
183.33
83.33
250.00
119.99
4199.4
70
239.99
15000
16799.30
70
214.29
14000.00
200.00
71.43
300.00
59.99
1799.3
80
199.99
18000
15999.20
80
225.00
17000.00
212.50
62.50
300.00
-80.01
-2000.8
90
149.99
22000
13499.10
90
244.44
21000.00
233.33
55.56
400.00
-250.01
-8500.9
100
99.99
25000
9999.00
100
250.00
24000.00
240.00
50.00
300.00
-350.01
-15001
Computation of variables for Rebook
Q
P
TC
TR
TP
ATC
TVC
AVC
AFC
MC
MR
Profit
0
399.99
5000
0.00
0
-5000
10
379.99
5500
3799.90
10
550.00
500.00
50.00
500.00
50.00
379.99
-1700.1
20
359.99
6000
7199.80
20
300.00
1000.00
50.00
250.00
50.00
339.99
1199.8
30
339.99
7100
10199.70
30
236.67
2100.00
70.00
166.67
110.00
299.99
3099.7
40
319.99
9000
12799.60
40
225.00
4000.00
100.00
125.00
190.00
259.99
3799.6
50
299.99
10500
14999.50
50
210.00
5500.00
110.00
100.00
150.00
219.99
4499.5
60
269.99
12000
16199.40
60
200.00
7000.00
116.67
83.33
150.00
119.99
4199.4
70
239.99
13500
16799.30
70
192.86
8500.00
121.43
71.43
150.00
59.99
3299.3
80
199.99
15000
15999.20
80
187.50
10000.00
125.00
62.50
150.00
-80.01
999.2
90
149.99
17000
13499.10
90
188.89
12000.00
133.33
55.56
200.00
-250.01
-3500.9
100
99.99
17500
9999.00
100
175.00
12500.00
125.00
50.00
50.00
-350.01
-7501
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