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Homework answers / question archive / Rod N Reel owns a dealership that sells fishing boats in an open price-searcher market
Rod N Reel owns a dealership that sells fishing boats in an open price-searcher market. To develop his pricing strategy, Rod hired an economist to estimate his demand curve. The first two columns of the chart provide the data for the expected weekly quantity demanded for Rod's fishing boats at alternative prices. Rod's marginal (and average cost of supplying each boat is constant at $3,000 per boat, no matter how many boats he sells per week in this range. This cost includes all opportunity costs and represents the economic cost per boat. Complete the following table by finding the total revenue and total cost per week at cach quantity, the marginal revenue and marginal cost from the sale of each additional boat, and the economic profit per week at each quantity Fishing Boats Sold Total Revenue Marginal Revenue Marginal Cost Economie Profit Total Cost (s per Week) ($ per Week) (sper Wine) (Boats per week) 0 1 (s per week) $0 (5 per week) 30 50 $3,000 Price of Fishing Boats $9,000 $8,000 $7,000 56,000 $5,000 54,000 $3,000 2 1 3 $3.000 $3,000 $3,000 4 5 per boat. At this price, Rod will sell boats per week at the If Rod wants to maximize his profits, he should charge a price of profit maximizing price MacBook Air og Db 9 80 888 5: 6 + A % $ & 7 * 00 11 9 0 2 6 4 3 5
$4,000 $3,000 It Rod wants to maximize his profits, he should charge a price of profit-maximizing price per boat. At this price, Rod will sell boats per week at the At this price and sales volume, Rod's profits per week will be True or False: At the price and sales level where profits are maximized, Rod has sold all boats that have higher marginal revenue thon marginal cost True False Rod's profits are typical of all firms in the boat sales business. es of the industry until economic profits are eliminated These profits will induce firms to Recall the relationship between elasticity of demand, price changes, and their impact on total revenues y. Thus, demand over this range of As Rod lower his price from $9,000 to $5,000 his total revenues keep prices Thus, demand is between these two When Rod lowers his price from $5,000 to $4,000, his total revenues prices Grade it Now Save & Continue Continue without saving MacBook Air DO DIL 00 34 888
The table below shows the total revenue, total costs and the economic profits
| Price | Quantity | Total revenue | Marginal revenue | Total cost | Marginal cost | Economic profit |
| 9000 | 0 | 0 | - | 0 | - | 0 |
| 8000 | 1 | 8000 | 8000 | 3000 | 3000 | 5000 |
| 7000 | 2 | 14000 | 6000 | 6000 | 3000 | 8000 |
| 6000 | 3 | 18000 | 4000 | 9000 | 3000 | 9000 |
| 5000 | 4 | 20000 | 2000 | 12000 | 3000 | 8000 |
| 4000 | 5 | 20000 | 0 | 15000 | 3000 | 5000 |
Marginal revenue= TRn-TRn-1/Change in Q
economic profit= Total revenue- Total cost
If Rod wants to maximise the profit, he would sell at $6000 as price and 3 boats per week would be sold.
The economic profit at this level would be $9000.
The statement is true. At the price where the boats are sold, Rod has sold all of them where the marginal revenue is greater than marginal cost.
Since Rod and similar firms in the industry are earning profits, the firms would enter till the profits are eliminated.
From price $9000 to $5000, it is seen that the total revenue is increasing. And it is known that total revenue would increase when price is decreasing when demand is elastic ie a decrease in price is accompanied by a larger percentage increase in quantity.
In case when price goes from $5000 to $4000, the price is still decreasing, but his total revenue is the same. This means that the demand in this range of the curve is unit elastic ie a change in price does not change the revenue.
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