Question

(25 points) Ginsue Inc. has developed a unique beverage that sharpens/clarifies the thinking of those who drink it. Ginsue has been given exclusive rights by the US government to sell their innovative beverage. In order to develop its approach to production and sales, Ginsue has done market research that has confirmed that the beverage has no close substitutes and yielded the following information about the beverage's demand, marginal revenue and marginal cost: Demand: P = 800 - 4Q or when solved for Q is Q = 200 - 2P MR = 800 - 8Q MC = 20 + 4Q Where Q indicates the number of pints (sold in thousands) and P is the price. Assume that the firm's total cost if it temporarily shuts-down (that is, chooses to produce zero output) is $19,000. a. Draw a clearly labeled graph illustrating Ginsue's demand, marginal revenue, and marginal cost. Solve for its profit maximizing output and price, show them on your graph. Calculate, and show in your graph, the areas that represent consumer surplus and producer surplus.

Answer 1

MU tes Do when o=0; P=800 1. When P=0 ; 0= 200 MR when o=0; MR = 800 When MR=0 80 = 800 =10 - 800 - IVO Mc : when d = o.MC = 20 syot PSG 280 8 do me a 65 loo Profit is monimized where MR = MC. So. 800-80 = 20 + ud So, 40+80 - 80 - 20 So, 120 - 780 = 20 = 760 =)0=65) P: goo -4Q = 800 - 4(65) = Pro - 960 =TP = 5401 At Q = 65 ; MC = 20 +4C65) = 20 + 260 - 280 cs) . Consumer Surplus = area ABC = ļx BC X AB = ļxos (800-540) * = {xo5 260 = 65x130 = 18,450] . Produced surplus (PS) = area BC EF = (CE + Bf) BC = 1640-280) + (540 -20) Jx65 : = (260 +529) as 2 CS CamScanzer 125,350 - Scanned With 390 X 65