Ed Scahill has acquired a monopoly on the production of baseballs (don’t ask how), and faces the demand and cost situation given in the following table: P Q Revenue MR TC MC
20 15000 330000
19 20000 365000
18 25000 405000
17 30000 450000
16 35000 500000
15 40000 555000
a. Fill in the remaining values in the table.
b. If Ed wants to maximize profits, what price should he charge and how many baseballs should he sell? How much profit will he make?
c. Suppose the government imposes a tax of $50,000 per week on baseball production. Now what price should Ed charge, how many baseballs should he sell, and what will his profits be?

a. See part a of the attached excel file for the filling of the remaining values.

b. Ed should sell at the price of $16 and he should sell 35,000 baseballs. Therefore, his profit will be $60,000.

c. Ed should still sell at the price of $16 and he should sell 35,000 baseballs. But, his profit will be $10,000.

Explanation:

Note: The data in this question are merged together. They are therefore sorted before answering the question. See the attached pdf file for the complete question with the sorted data.

The explanation to the answer is now given as follows:

a. Fill in the remaining values in the table.

Note: See part a of the attached excel file for the filling of the remaining values.

In the attached excel file, the following formula is used.

Revenue = P * Q

MR = Current MR – Previous MR

MC = Current MC – Previous MC

b. If Ed wants to maximize profits, what price should he charge and how many baseballs should he sell? How much profit will he make?

Ed will maximize profit where his MR = MC.

In the part a of the attached excel file, MR = MC = 50,000 when P = 16, Q = 35,000, Revenue = 560,000, and TC = 500,00

Therefore, Ed should sell at the price of $16 and he should sell 35,000 baseballs.

Also, his profit at this point can be calculated as follows:

Profit = Revenue – TC = 560,000 – 500,000 = 60,000

Therefore, his profit will be $60,000.

c. Suppose the government imposes a tax of $50,000 per week on baseball production. Now what price should Ed charge, how many baseballs should he sell, and what will his profits be?

Note: See part c of the attached excel file the new table showing the effect of $50,000 tax per week.

The imposition of $50,000 tax per week will make the total cost (TC) of Ed to increase by $50,000.

Therefore, we add $50,000 to each of the TC as shown in the part c of the attached excel file.

Just like before, Ed will maximize profit where his MR = MC.

In the part c of attached excel file, MR = MC = 50,000 when P = 16, Q = 35,000, Revenue = 560,000, and TC = 550,00.

Therefore, Ed should still sell at the price of $16 and he should sell 35,000 baseballs.

Also, his profit at this point can be calculated as follows:

Profit = Revenue – TC = 560,000 – 550,000 = 10,000

Therefore, his profit will be $10,000.

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