PRACTICE-MARGINAL ANALYSIS #1 You run a beef operation and you\'re trying to imp
ID: 1134132 • Letter: P
Question
PRACTICE-MARGINAL ANALYSIS #1 You run a beef operation and you're trying to improve the profitability of the herd. You're focusing on your feeding program. From experience you have the following levels of response (weight gain) to the amount of corn you feed. Corn costs you $0.05 per pound. You sell your steers for $0.80/lb Pounds of corn fedChange in Change in feed cost Change in revenues @ $0.05/lb weight gain 0 100 200 300 400 500 15 8 4 How much corn should you feed to maximize your profits? Why? What if the price of corn jumps to $0.10/lb- now how much corn would you feed?Explanation / Answer
1) Solution:
Pounds of corn fed
Change in weight gain
Change in feed cost
Change in revenue @0.05
0
5
0
100
15
5
12
200
11
5
8.8
300
8
5
6.4
400
4
5
3.2
500
2
5
1.6
Working:
Pounds of corn fed
Change in weight gain
Change in feed cost
Change in revenue @0.05
0
100
15
(100-0) * 0.05 = $5
15 * 0.08 = $12
200
11
(200-100) * 0.05 = $5
11 * 0.08 = $8.80
300
8
$5
8 * 0.08 = $6.40
400
4
$5
$3.20
500
2
$5
$1.60
2) Solution: 300 pounds
Explanation: Because marginal revenue must exceed or equal to MC; and as $6.40 is greater than $5 thus 300 pounds of corn should be fed to maximize your profits
3) Solution: 100 pounds
Explanation: Because marginal revenue must exceed or equal to MC; and as MC = 100*0.10 = $10 thus MR is greater than or equal to MC at 100 lbs
Pounds of corn fed
Change in weight gain
Change in feed cost
Change in revenue @0.05
0
5
0
100
15
5
12
200
11
5
8.8
300
8
5
6.4
400
4
5
3.2
500
2
5
1.6
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