Question
A firm has a supply function given by S(p) = 4p. Its fixed costs are 100.
If the price changes from 10 to 20, what is the change in its profits? Show your working clearly
If the price changes from 10 to 20, what is the change in its profits? Show your working clearly
Answers
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Change in profits = Total Revenue - Total Cost
Total Revenue = Price x Quantity
Total Cost = Fixed Cost + Variable Cost
Price = 10 to 20
Quantity = S(p) = 4p
Total Revenue = (20 x 4p) - (10 x 4p)
Total Revenue = 80p - 40p
Total Revenue = 40p
Total Cost = Fixed Cost + Variable Cost
Total Cost = 100 + (4p x 10)
Total Cost = 100 + 40p
Total Cost = 140p
Change in profits = Total Revenue - Total Cost
Change in profits = 40p - 140p
Change in profits = -100
Total Revenue = Price x Quantity
Total Cost = Fixed Cost + Variable Cost
Price = 10 to 20
Quantity = S(p) = 4p
Total Revenue = (20 x 4p) - (10 x 4p)
Total Revenue = 80p - 40p
Total Revenue = 40p
Total Cost = Fixed Cost + Variable Cost
Total Cost = 100 + (4p x 10)
Total Cost = 100 + 40p
Total Cost = 140p
Change in profits = Total Revenue - Total Cost
Change in profits = 40p - 140p
Change in profits = -100