Questions on Demand, Supply, Price and Profit

 The El Dorado Star is the only newspaper in El Dorado,   New Mexico. Certainly, the Star   competes with The Wall Street Journal, USA Today, and The New York Times for   national news reporting, but the Star offers readers stories of local   interest, such as local news, weather, high-school sporting events, and so   on. The El Dorado Star faces the   demand and cost schedules shown in the spreadsheet that follows:   1 2 3      Number of Price (P) Total Cost      Newspapers   per day      Per day   (TC)      (Q)          0 $0  $2,000       1000 $1.50  2100      2000 1.25 2200      3000 1 2360      4000 0.8 2520      5000 0.7 2700      6000 0.6 2890      7000 0.55 3090      8000 0.45 3310      9000 0.4 3550              a)   Create a spreadsheet using Microsoft Excel (or any other spreadsheet   software) that matches the one above by entering the output, price, and cost   data given.   b)   Use the appropriate formulas to create three new columns (4,5 and 6) in your   spreadsheet for total revenue, marginal revenue (MR), and marginal cost (MC),   respectively. [Computation check: At Q= 3,000, MR=$0.50 and MC = $0.16]. What   price should the manager of the El Dorado Star charge? How many papers should   be sold daily to maximize profit?   c)   At the price and output level you answered in part b, is the El Dorado Star   making the greatest possible amount of total revenue? Is this what you   expected? Explain why or why not.   d)   Use the appropriate formulas to create two new columns (6 and 7) for total   profit and profit margin. What is the maximum profit the El Dorado Star can   earn? What is the maximum possible profit margin? Are profit and profit   margin maximized at the same point on demand?   e)   What is the total fixed cost for the El Dorado Star? Create a new spreadsheet   in which total fixed cost increases to $5,000. What price should the manager   charge? How many papers should be sold in the short run? What should the   owners of the Star do in the long run?

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