We observe that 172 pairs of tennis shoes are sold at Shoe Carnival in a weekend

Question

We observe that 172 pairs of tennis shoes are sold at Shoe Carnival in a weekend. We have estimated the demand curve to be Pd = 132 – 0.45Q.
a) What was the price of the tennis shoes this weekend? What was the total revenue?
b) If we discounted the shoes $10, how many do you estimate we’d sell? What is the total revenue?
c) Describe the marginal revenue function (i.e., give the equation). Does the marginal revenue function agree with the results in part B? Why or why not?
d) Make a spreadsheet in Excel with columns labeled P, Q, TR and MR for values of Q equaling 20, 25, 30, 35 and 40. Use the graphing function to show the demand curve, MR curve and TR curve.

Assume I sell rubber garden hoses. I sell my hoses for $10 each and expect to sell
100,000/year for the next three years. My fixed costs are $185,000 and my variable costs are expected to be $650,000, 690,000 and 750,000 in each of the next 3 years. Assume rubber hoses will be outlawed in 3 years due to water scarcity and watering regulations. My rate of interest on borrowed funds is 7.5%. What’s the cash value of the firm if I want to sell it today?

Why do economists constantly use the word “marginal”? How do “marginal” and “average” differ?

Explanation / Answer

Given Pd = 132-0.45Q For Q= 172, Pd = 132 - 0.45 * 172 = 132-77.4 = 54.6 (a) Price of the tennis shoes this weekend $54.6 Total Revenue = 172 * 54.6 = $9391.2 (b) Price Pd when discounted by 10 % = 54.6 - 5.46 = 49.14 From Pd = 132-0.45Q ==> Q = (132-P)/0.45 = (132-49.14)/0.45 =184.1333=184 pairs approx. Marginal means if we increase the quantity that we buy, then what will be the effect on price. This is called marginal cost. Average means from the data that we have of different products, we calculate average price.

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