this question I don't have anything else
Posted: Sun May 08, 2022 9:06 am
this question I don't have anything else
a. YOUR OWN SETTING: 3. Use a firm-behavior model to illustrate the effect of increased or decreased demand on a firm's profitability. Here are the steps for this analysis (20 points total): Assume a constant marginal cost of production and a fixed cost of production to obtain a total cost function of the form, TC(Q) = FC + MC * Q. FC denotes the fixed cost, in $, and MC denotes the marginal cost or average variable cost, in $ per unit. (3 points) b. Assume a linear demand curve (having the form Q = A – BP with some specific numbers A >0 and B > 0) which represents total demand for all consumers in the market, or total demand for all consumers of a given Type. (2 point) Ungraded suggestion: Try to "calibrate" (that is, come up with some reasonable numerical assumptions for) your linear demand curve. See the following page for an example. c. Using the total cost function in (a) and the demand curve in (b), solve for the producer's profit-maximizing quantity, baseline, price, Pbaseline, and maximal level of profit, ntbaseline. (5 points) d. Create a graph with the marginal cost, average total cost demand, and marginal revenue curves. (3 points) Hint and ungraded suggestion: You may wish to start with the example Excel model "ECB 311 Using the firm behavior model - demand increase simulation" and modify the numbers (and graph axes, labels, etc.), to create a nice graph for your own example. Use the model to simulate an % increase or decrease in demand and describe the effect on profit. (5 points) Ungraded suggestion: Try to make the assumed change realistic, based on your research. To do this: Find an equation for the new demand curve: Multiply your equation Q = A - BP by (1+x/100) if it's an increase (or multiply by (1-x/100), if it's a decrease). e.
= = - For example, if A = 1500, B = 50,QBaseline : 1500 – 50P, and you are simulating a demand increase of 20%, then x 20 and Qsimulation = (1+ 200 ) (1500 – 50P)-QSimulation = 1800 – 60P. Solve for the new profit-maximizing ( simulation, price, Psimulation, and level of profit, I simulation. Describe how profit has changed: what is Tsimulation – TT baseline? f. Use the graph to show your simulation: Add the new demand and marginal revenue curves to your graph. Label this graph Figure 5 and include a descriptive Title in the label. (E.g., “20% increase in families with kids increases the profit of The Babysitter's Club by 22%”) (2 points) *
5 - " che from the baseline as reuk of the diferent assumption Market Power Firm Example Baseline inverse demand term Simulation: Increase in Demand mand curve where PQ) EhQ were demand tem outros assumption coefficients (whare TC-fetme 03 Total cost term fc . hauteulemandssumed to me one total cost Racetra Inverse Demand assumed total ocene cu total cost ATC AVC Marginal (TR) fu) 1 49.90909091 $100 $100.15 0.15 $100 $33.48 $0.45 BU O ooo 6 CLOS ・・・ $12.20 $16.82 1:09 MA Oigo 9 NA $102 uu $380.9 8 $16 $10.19 gas 19 102 $483.1 $531. $3094 $495.1 **85 $580:1 NE 40 as 15 $6242 $7212 die 1. &&&& 18 Ն Ե Ց DR NM $1 80 45
$100 $/unit 10% increase in demand increases profit by 10.16% $90 • Demand P(Q) (Baseline) $80 MR (Baseline) $70 $60 * ATC (Baseline) - AVC (Baseline) Marginal cost (Baseline) Demand P(Q) (Simulated) $50 $40 MR (Simulated) $30 Profit (simulation) ATC (Simulated) $20 Profit (baseline) AVC (Simulated) $10 * Marginal cost (Simulated) $0
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= = - For example, if A = 1500, B = 50,QBaseline : 1500 – 50P, and you are simulating a demand increase of 20%, then x 20 and Qsimulation = (1+ 200 ) (1500 – 50P)-QSimulation = 1800 – 60P. Solve for the new profit-maximizing ( simulation, price, Psimulation, and level of profit, I simulation. Describe how profit has changed: what is Tsimulation – TT baseline? f. Use the graph to show your simulation: Add the new demand and marginal revenue curves to your graph. Label this graph Figure 5 and include a descriptive Title in the label. (E.g., “20% increase in families with kids increases the profit of The Babysitter's Club by 22%”) (2 points) *
5 - " che from the baseline as reuk of the diferent assumption Market Power Firm Example Baseline inverse demand term Simulation: Increase in Demand mand curve where PQ) EhQ were demand tem outros assumption coefficients (whare TC-fetme 03 Total cost term fc . hauteulemandssumed to me one total cost Racetra Inverse Demand assumed total ocene cu total cost ATC AVC Marginal (TR) fu) 1 49.90909091 $100 $100.15 0.15 $100 $33.48 $0.45 BU O ooo 6 CLOS ・・・ $12.20 $16.82 1:09 MA Oigo 9 NA $102 uu $380.9 8 $16 $10.19 gas 19 102 $483.1 $531. $3094 $495.1 **85 $580:1 NE 40 as 15 $6242 $7212 die 1. &&&& 18 Ն Ե Ց DR NM $1 80 45
$100 $/unit 10% increase in demand increases profit by 10.16% $90 • Demand P(Q) (Baseline) $80 MR (Baseline) $70 $60 * ATC (Baseline) - AVC (Baseline) Marginal cost (Baseline) Demand P(Q) (Simulated) $50 $40 MR (Simulated) $30 Profit (simulation) ATC (Simulated) $20 Profit (baseline) AVC (Simulated) $10 * Marginal cost (Simulated) $0