Question

1. Assume (inverse) demand is given as P = $400-$10Q. The firm has an overhead cost of $800 and operating costs of $10Q +$0.30Q²

1. In excel, create the necessary columns to eventually calculate the firm’s breakeven point based on the data from this problem.
2. Graph the Total Revenue and Total Cost function on one graph. Export to word and create a managerial summary discussing the firm’s ranges of losses, breakeven, and profits.

Answer 1

(a)

P = 400 - 10Q

Total revenue (TR) = P x Q = 400Q - 10Q²

Total cost (TC) = Overhead + Operating cost = 800 + 10Q + 0.3Q²

In break-even, TR = TC.

Data table:

Q	P	TR	TC
0	400	0	800
5	350	1750	857.5
10	300	3000	930
15	250	3750	1017.5
20	200	4000	1120
25	150	3750	1237.5
30	100	3000	1370
35	50	1750	1517.5
40	0	0	1680
45	-50	-2250	1857.5
50	-100	-5000	2050

(b)

In following graph, TR and TC intersect twice: At point A where output is Q1 and at point B where output is Q2.

In the range between 0 to Q1, TR is less than TC, so this is the region of loss.

In the range between Q1 to Q2, TR is higher than TC, so this is the region of profit.

In the range between Q2 and beyond, TR is less than TC, so this is the region of loss.