1. The El Dorado Star is the only newspaper in El Dorado, New Mexico. Certainly,
ID: 1191937 • Letter: 1
Question
1. The El Dorado Star is the only newspaper in El Dorado, New Mexico. Certainly, the Star competes with The Wall Street Journal, USA Today, and the New York Times for national news reporting, but the Star offers readers stories of local interest, such as local news, weather, high-school sporting events, and so on. The El Dorado Star faces the demand and cost schedules shown in the spreadsheet below
El Dorado Star
(1)
(2)
(3)
Number of newspapers per day (Q)
P
Total cost per day (TC)
0
0
5,000
1,000
$6.00
5,200
2,000
$5.50
6,200
3,000
$5.00
7,250
4,000
$4.50
8,500
5,000
$4.00
10,000
6,000
$3.50
11,750
7,000
$3.00
13,750
8,000
$2.50
16,250
9,000
$2.00
19,500
Use the appropriate formulas to create three new columns 4, 5, and 6 in your spreadsheet for total revenue (TR), marginal revenue (MR), and marginal cost (MC), respectively.
[Computation check: At Q = 3,000, MR = $4.00 and MC = $1.05.
What price should the manager of El Dorado Star charge?
How many papers should be sold daily to maximize profit?
At the price and output level you answered in parts b and c, the El Dorado Star ______ (is, is not) making the greatest possible amount of TOTAL revenue.
Use the appropriate formulas to create two new columns 7 and 8 for total profit (PROF) and profit margin (PROFMARG), respectively.
The maximum profit El Dorado Star can earn is $_______.The maximum possible profit margin is $_______ per unit.Profit and profit margin _______ (are, are not) maximized at the same point on demand.
Total fixed cost for the El Dorado Star is $_______.
Create a new spreadsheet in which total fixed cost increases to $25,000.What price should the manager charge?How many papers should be sold in the short run?What should the owners of the Star do in the long run?
El Dorado Star
(1)
(2)
(3)
Number of newspapers per day (Q)
P
Total cost per day (TC)
0
0
5,000
1,000
$6.00
5,200
2,000
$5.50
6,200
3,000
$5.00
7,250
4,000
$4.50
8,500
5,000
$4.00
10,000
6,000
$3.50
11,750
7,000
$3.00
13,750
8,000
$2.50
16,250
9,000
$2.00
19,500
Explanation / Answer
Profits are maximised at price = $4. Quantity = 5000newspapers. Profit =$ 10,000.
At this level of profit maximisation output, El Darodo is NOT making greatest possible total revenue, as total revenue is maximised $21000, output =6000.
Total fixed cost is $5000. Fixed cost is the cost incurred at zero level of output.
Q P TC TR MR MC PROFITS 0 0 5000 0 0 0 -5000 1000 6 5200 6000 6 0.2 800 2000 5.5 6200 11000 5 0.1 4800 3000 5 7250 15000 4 1.05 7750 4000 4.5 8500 18000 3 1.25 9500 5000 4 10,000 20000 2 1.5 10000 6000 3.5 11750 21000 1 1.75 9250 7000 3 13750 21000 0 2 7250 8000 2.5 16250 20000 -1 2.5 3750 9000 2 19500 18000 -2 3.25 -1500Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.