Intro Exercise:

On the "Example" page of this worksheet, use the values and graphs
to
Be explain
sure to the shape
focus on of
theALL theof
areas lines in thethat
interest graphs below. by blue
are indicated
circles. Be prepared to report your findings and theories back to the
class.
Example: Boulton's Gimzos Inc.
Use this table and the charts to analyze the blue areas.

Total # of Total Output Average Marginal Total Variable

Workers or Product Product Product Total Fixed Costs Costs
Q TFC TVC
(in units) TC = TFC + TVC
0 0.0 $200.00 $0.00
15.0 $200.00 $40.00
1 30.0 30.0 30.0 $200.00 $80.00
50.0 32.5 35.0 $200.00 $125.00
2 70.0 35.0 40.0 $200.00 $170.00
95.0 37.5 45.0 $200.00 $220.00
3 120.0 40.0 50.0 $200.00 $270.00
150.0 42.5 55.0 $200.00 $325.00
4 180.0 45.0 60.0 $200.00 $380.00
200.0 44.5 50.0 $200.00 $425.00
5 220.0 44.0 40.0 $200.00 $470.00
235.0 42.8 35.0 $200.00 $510.00
6 250.0 41.7 30.0 $200.00 $550.00
260.0 40.1 25.0 $200.00 $585.00
7 270.0 38.6 20.0 $200.00 $620.00
275.0 36.8 15.0 $200.00 $650.00
8 280.0 35.0 10.0 $200.00 $680.00
284.0 33.5 9.0 $200.00 $709.00
9 288.0 32.0 8.0 $200.00 $738.00
290.5 30.7 6.5 $200.00 $765.50
10 293.0 29.3 5.0 $200.00 $793.00
 Average Fixed Average Total
Total Cost Cost Average Variable Cost Cost Marginal Cost
TC AFC AVC ATC MC
TC = TFC + TVC AFC = TFC/Q AVC = TVC/Q ATC = TC/Q MC = (chng TC)/(chng Q)
$200.00
$240.00 $2.67
$280.00 $6.67 $2.67 $9.33 $2.46
$325.00 $4.76 $2.55 $7.31 $2.25
$370.00 $2.86 $2.43 $5.29 $2.13
$420.00 $2.26 $2.34 $4.60 $2.00
$470.00 $1.67 $2.25 $3.92 $1.92
$525.00 $1.39 $2.18 $3.57 $1.83
$580.00 $1.11 $2.11 $3.22 $2.04
$625.00 $1.01 $2.12 $3.13 $2.25
$670.00 $0.91 $2.14 $3.05 $2.46
$710.00 $0.85 $2.17 $3.02 $2.67
$750.00 $0.80 $2.20 $3.00 $3.08
$785.00 $0.77 $2.25 $3.02 $3.50
$820.00 $0.74 $2.30 $3.04 $4.75
$850.00 $0.73 $2.36 $3.09 $6.00
$880.00 $0.71 $2.43 $3.14 $6.63
$909.00 $0.70 $2.50 $3.20 $7.25
$938.00 $0.69 $2.56 $3.26 $9.13
$965.50 $0.69 $2.63 $3.32 $11.00
$993.00 $0.68 $2.71 $3.39
C)/(chng Q)
Question #1 - Boulton Electronics Inc.
Learning how to build the table and charts, and that maximum revenue and maximum profit don't always occu

NOTE: Colours are significant. They relate categories of values to the graphs

Av
Total Output Total Fixed Total Variable
Total Cost Average Fixed Cost
or Product Costs Costs
Q TFC TVC TC AFC
(in units) TC = TFC + TVC AFC = TFC/Q
OUTPUT COST RELATED
- 300,000 -
1,000 130,000
2,000 200,000
3,000 255,000
4,000 300,000
5,000 325,000
6,000 348,000
7,000 371,000
8,000 392,000
9,000 405,000
10,000 430,000
11,000 485,100
12,000 552,000
13,000 630,500
14,000 728,000
15,000 840,000
16,000 960,000
17,000 1,105,000
18,000 1,260,000
19,000 1,710,000
20,000 2,200,000

Instructions:
1). Complete the table above (remember to insert blank rows and fake the numbers inbetween to
Right now the demand line's equation is this: Price = -5/1000(Q)+160. Begin by using this formula to
2). Once done, use the table of values to build the following charts
a) Chart 1
TR, TC, Profit
b) Chart 2
TC, TFC, TVC
c) Chart 3
TR, AR
d) Chart 4
 ATC, AFC, AVC, MC, MR
e) Play with the D=P=AR line
Now add 50 to every price (change the intercept). What happens?
Can you change the slope? What happens to the D-line and the MR-line? How about maximum profit?
 Demand line
ximum profit don't always occur at the same level of output -0.005
160

Average and Per Unit Values

Average
Average Average
Variable Marginal Cost Marginal Revenue
Total Cost Revenue
Cost
AVC ATC MC MR D=P=AR
AVC = TVC/Q ATC = TC/Q MC = (chng TC)/(chng Q)MR = (chng TR)/(chng Q)
ELATED REVENUE RELATED

e the numbers inbetween to get MR and MC to work properly in Excel).

Begin by using this formula to build the demand line quickly.
? How about maximum profit?
 Slope
Intercept

Total Revenue Total Profit

TR TP
Profit = TR - TC
VENUE RELATED
Question #2a

Average
Total
Total Fixed Average Fixed Average Variable
Total Output Variable Total Cost
Costs Cost Cost
or Product Costs
Q TFC TVC TC AFC AVC
(in units) TC = TFC + TVC AFC = TFC/Q AVC = TVC/Q
0 200.00 0.00
1 30.00
2 40.00
3 55.00
4 100.00
5 170.00
6 280.00
7 420.00

a) Complete the table above

b) Use the data in the table to graph the following:
i) Average fixed cost, average variable cost, average total cost, and marginal cost
Why the difference in the shape of AFC and AVC lines from the TFC and TVC lines?
Where is the point of profit maximization? Can you tell without the D=P=AR=MR line?
ii) Total revenue and total cost curves indicating the output which yields maximum profit
What does the verticle distance between the lines represent?
Why is the TR line verticle with a constant slope? What would it look like for a monopoly (or a firm
iii) Marginal cost and marginal revenue curves indicating the level of output at which these two
What is significant about where the MC curve crosses the ATC curve and the AVC curve? Why?
What is unqiue about the AFC curve?
c) Add the Marginal Revenue line to graph (i)
Where is maximum profit per unit?
Where is maximum TOTAL profit? Is it the same place? Why or why not?
Where will this firm choose to produce?
Economic Profit
 Average and Per Unit Values

Average Total
Marginal Cost Marginal Revenue Total Revenue Total Profit
Cost
ATC MC MR TR TP
ATC = TC/Q MC = (chng TC)/(chng Q)MR = (chng TR)/(chng Q) PxQ Profit = TR - TC
0.00
80.00
160.00
240.00
320.00
400.00
480.00
560.00

arginal cost
and TVC lines?
D=P=AR=MR line?
ds maximum profit

like for a monopoly (or a firm with a normally elastic demand curve)
output at which these two curves intersect.
and the AVC curve? Why?
= TR - TC
Question #2b

Revenues
Total Marginal Marginal
Total Output Revenue Revenue Total Cost Cost Profit
0 0 20 -20
1 25 25 40 20 -15
2 50 25 50 10 0
3 75 25 70 20 5
4 100 25 90 20 10
5 125 25 120 30 5
6 150 25 150 30 0
7 175 25 180 30 -5

a) Complete the table above

b) At what level of output is profit maximized?
c) Graph the total revenue and total cost curves. Indicate the point at which profit is maximized
d) Graph the marginal revenue and marginal cost curves. Label the point at which the two curves in
profit is maximized
which the two curves intersect.
Question #3a
Total
Total Output Price Total Cost Average Cost Revenue Marginal Cost
Q P TC ATC TR MC
(in units) TC = TFC + TVC ATC = TC/Q MC = (chng TC)/(chng Q)
- 160 -
1,000 155 130,000
2,000 150 200,000
3,000 145 255,000
4,000 140 300,000
5,000 135 325,000
6,000 130 348,000
7,000 125 371,000
8,000 120 392,000
9,000 115 405,000
10,000 110 430,000
11,000 105 485,100
12,000 100 552,000
13,000 95 630,500
14,000 90 728,000
15,000 85 840,000
16,000 80 960,000
17,000 75 1,105,000
18,000 70 1,260,000
19,000 65 1,710,000
20,000 60 2,200,000

a) Use the cost information from question 1

b) Graph and label the marginal cost, average cost, marginal revenue, demand curves, and be sure
Make sure your y-axis goes up by units of $20
c) At what output does the monopoly maximize profit?
d) At the profit-maximizing output for the Monopoly, find and value and show the graphical shape f
i) MC/unit
ii) MR/unit
iii) ATC
iv)Price
v) Average profit
vi)Total maximum profit
e) Add the MR/AR/P/D line to this graph from question 1. This is vitally important. How and why is
Comment on the differences between the following for a competitive firms versus a monopoly:
Price
Output quantity
Costs (i.e. resource usage)
Profit (per unit and total)
 From question #1

Marginal Revenue Total Profit Marginal Revenue

MR MR/AR/P/D
MR = (chng TR)/(chng Q)Profit = TR - TC MR = (chng TR)/(chng Q)

d curves, and be sure to show total profit.

the graphical shape for:

rtant. How and why is it different?

monopoly:
Question #3b
Total Output Price Marginal Revenue Revenue
Q P MR TR
(in units) MR = (chng TR)/(chng Q)
1 200 200
2 180 360
3 160 480
4 140
5 120
6 100
7 80
8 60
9 40
10 20

a) Complete the table above

b) Graph the demand curve for the monopolist and label it D = AR
c) Graph the marginal revenue curve and label it MR
Question #4
Total Marginal
Price Total Output Revenue Revenue
P Q TR MR
($) (in units) MC = (chng TC)/(chng Q)
92.5 2
90 3
87.5 4
85 5
82.5 6
70 7
60 8
50 9
40 10
30 11
20 12
10 13

a) Complete the table above

b) Graph the demand, total revenue, marginal revenue, and marginal cost curves
c) At what price is the demand curve kinked?
d) Suppose the oligopolist reduces the price per unit to $60. What would happen? Explain.
e) Assume that all firms in the industry collude. Indicate the new demand curve on your graph and
 Marginal Cost
MC
MC = (chng TC)/(chng Q)
25
27
30
33
40
50
70
100
140
190
260
350

arginal cost curves

What would happen? Explain.

new demand curve on your graph and explain its shape.