Exam 2: Economic Optimization

Marginal Analysis: Tables. Susan Mayer is a sales representative for the Desperate Insurance Company, and sells life insurance policies to individuals in the Phoenix area. Mayer's goal is to maximize total monthly commission income, which is figured at 10% of gross sales. In reviewing monthly experience over the past year, Mayer found the following relations between days spent in each city and monthly sales generated. A. Construct a table showing Mayer's marginal sales per day in each city. B. If administrative duties limit Mayer to only 10 selling days per month, how should she spend them? C. Calculate Mayer's maximum monthly commission income.

Average Cost Minimization. Commercial Recording, Inc., is a manufacturer and distributor of reel-to-reel recording decks for commercial recording studios. Revenue and cost relations are:

The breakeven level of output occurs where:

Profit Maximization: Equations. Steam Cleanin, Inc., offers professional carpet cleaning to home owners in Huntsville, Alabama. The company is the low-cost provider in this market with fixed costs of $168,750 per year, plus variable costs of $10 per room of carpet cleaning. Annual demand and marginal revenue relations for the company are: A. Calculate the profit-maximizing activity level. B. Calculate the company's optimal profit and return-on-sales levels.

Marginal Analysis: Tables. Lynette Scavo is a telemarketing manager for Laser Supply, Inc., which sells replacement chemicals to businesses with copy machines. Scavo's goal is to maximize total monthly commission income, which is figured at 5% of gross sales of per telemarketer. In reviewing monthly experience over the past year, Scavo found the following relations between worker-hours spent in each market segment and monthly sales generated. A. Construct a table showing Scavo's marginal sales per 100 worker-hours in each market segment. B. Scavo employs telemarketers for 1,000 worker-hours per month, how should their hours be allocated among market segments? C. Calculate Scavo's maximum monthly commission income.

If P = $1,000 - $4Q:

Marginal Analysis. Consider the price (P) and output (Q) data in the following table. A. Calculate the related total revenue (TR), marginal revenue (MR), and average revenue (AR) figures. B. At what output level is revenue maximized?

Profit Maximization: Equations. Dot.com Products, Inc., offers storage containers for fine china on the Internet. The company is the low-cost retailer of these quilted boxes with fixed costs of $480,000 per year, plus variable costs of $30 for each box. Annual demand and marginal revenue relations for the company are: A. Calculate the profit-maximizing activity level. B. Calculate the company's optimal profit and return-on-sales levels.

Profit Maximization. Fill in the missing data for price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), profit (p), and marginal profit (Mp) in the following table. A. At what output (Q) level is profit maximized? B. At what output (Q) level is revenue maximized? C. Discuss any differences in your answers to parts A and B.

Incremental profit is:

Which of the following short run strategies should a manager select to obtain the highest degree of sales penetration?

Profit Maximization. Fill in the missing data for price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), profit (p), and marginal profit (Mp) in the following table. A. At what output (Q) level is profit maximized (or losses minimized)? Explain. B. At what output (Q) level is revenue maximized?

Revenue Maximization. Restaurant Marketing Services, Inc., offers affinity card marketing and monitoring systems to fine dining establishments nationwide. Fixed costs are $600,000 per year. Sponsoring restaurants are paid $60 for each card sold, and card printing and distribution costs are $3 per card. This means that RMS's marginal costs are $63 per card. Based on recent sales experience, the estimated demand curve and marginal revenue relations for are:

Inflection is:

Revenue Maximization. Assume the following output (Q) and price (P) data. A. At what output level is revenue maximized? B. Why is marginal revenue less than average revenue at each price level?

Not-for-Profit Analysis. The Indigent Care Center, Inc., is a private, not-for-profit, medical treatment center located in Denver, Colorado. An important issue facing Dr. Kerry Weaver, ICC's administrative director, is the determination of an appropriate patient load (level of output). To efficiently employ scarce ICC resources, the board of directors has instructed Weaver to maximize ICC operating surplus, defined as revenues minus operating costs. They have also asked Weaver to determine the effects of two proposals for meeting new state health care regulations. Plan A involves an increase in costs of $100 per patient, whereas plan B involves a $20,000 increase in fixed expenses. In her calculations, Weaver has been asked to assume that a $3,000 fee will be received from the state for each patient treated, irrespective of whether plan A or plan B is adopted. In the calculations for determining an optimal patient level, Weaver regards price as fixed; therefore, P = MR = $3,000. Prior to considering the effects of the new regulations, Weaver projects total and marginal cost relations of: where Q is the number of ICC patients.

Profit Maximization. Fill in the missing data for price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), profit (p), and marginal profit (Mp) in the following table. A. At what output (Q) level is profit maximized? B. At what output (Q) level is revenue maximized? C. Discuss any differences in your answers to parts A and B.

Profit Maximization. Fill in the missing data for price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), profit (p), and marginal profit (Mp) in the following table. A. At what output (Q) level is profit maximized? B. At what output (Q) level is revenue maximized? C. Discuss any differences in your answers to parts A and B.

If profit is to rise as output expands, then marginal profit must be:

Total revenue is maximized at the point where marginal: