Quantitative Exercise

Scenario

You are the new owner of Drespie Corn Products and Refineries. You are interested in your company’s cost and revenue relationships as well as its future pricing strategies. Accordingly, you have developed the following relationships, which you believe to be accurate on the basis of historical data:

P = $50 – $0.005Q

TC = $73,500 + $6Q + $0.0006Q²

MR = $50 – $0.01Q

MC = $6 – $0.0012Q

where P is the price, Q the quantity, TC the total cost, MC the marginal cost, and MR the marginal revenue.

Tasks:

1. Using the Microsoft Excel Template given below, complete all the data in the template.
2. Use the following formula to calculate the profit-maximizing point: MR – MC = 0. Explain your answer.
3. Using the equation for MR (given below), calculate the revenue-maximizing level of output. Explain your answer.

MR = $50 – $0.01Q = 0

4. What is the difference between the output level where the total profit is maximized and the output level where the total revenue (TR) is maximized? What is the significance of these two values in the decision-making process?
5. Using Microsoft Excel, graph the data in the completed Template given below. Using the graph, identify the point where the total profit is maximized and the point where the TR is maximized. Explain your answers.

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