The Maxwell School

Syracuse University

Syracuse University

A producer has a total cost curve given by `TC(Q)=4000+20*Q^2` and is the only provider of its product in a market with a demand curve given by `WTP(Q) = 1500-10*Q`. Please use the template in Teams to build a spreadsheet to analyze the producer's optimal output for two cases: (1) the producer is a public organization interested in maximizing the number of clients it serves (Q max), and (2) the producer is a private firm interested in maximizing its profits (`\Pi` max).

Here are the specific steps to carry out to do the analysis:

- The spreadsheet has cells labeled WTP_A and WTP_B. They can hold the coefficients for a WTP equation that looks like this: `WTP(Q) = A + B*Q`. For this producer, the coefficients should be 1500 and -10.
- It also has cells labeled TC_A, TC_B and TC_C. They can hold the coefficients in a TC equation that looks like this: `TC(Q) = A + B*Q + C*Q^2`. For this particular producer, the coefficients should be 4000, 0 and 20.
- Insert a table in the output options area.
- Add an appropriate formula to the P column to compute the price for the row's Q using the WTP equation.
- Add an appropriate formulas to compute TR, TC, and profit.
- Add formulas for AR and AC. The first row will have errors since Q=0; delete those entries and leave the cells blank.
- Add a formula for the difference between AR and AC. That will make it easy to find the output maximizing Q.
- Add formulas for MR and MC that compute the difference between the current row's TR or TC and the TR or TC on the previous row. For example, in row 1 MR will be TR(1)-TR(0). The first row will have errors since there's no previous row; delete those entries and leave the cells blank.
- Add a column for the difference between MR and MC. That will make it easy to find the profit maximizing Q.
- Construct three separate figures: (1) a plot showing TR, TC and Profit; (2) a plot showing AR and AC; and (3) a plot showing MR and MC.
- Finally, find the output-maximizing and profit-maximizing levels of output and answer the questions at the bottom.

Save and submit the results!

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URL: https://wilcoxen.maxwell.insightworks.com/pages/9098.html

Peter J Wilcoxen, The Maxwell School, Syracuse University

Revised 04/02/2024

URL: https://wilcoxen.maxwell.insightworks.com/pages/9098.html

Peter J Wilcoxen, The Maxwell School, Syracuse University

Revised 04/02/2024