Maureen Supplize runs a yacht dealership. She has five potential customers, and
ID: 1216764 • Letter: M
Question
Maureen Supplize runs a yacht dealership. She has five potential customers, and she knows how much each would be willing to pay for one of her yachts: Fill in the blanks for the 2nd table to complete the demand table implied by these data. Assume that if the max willingness to pay is $5, and the price is $5, a purchase occurs. Fill in the total revenue column. Fill in the marginal revenue column. How many yachts will she sell if her goal is to maximize total revenue (not profit)? What price will she want to set? Now assume her goal is to maximize profit and that the marginal cost to her of selling a yacht is $6 million. In other words, each additional yacht she sells adds $6 million to her total costs. How many yachts will she now want to sell? What price will she want to set? If you have proceeded correctly, you should now be able to experience something of Maureen's frustration. Ewing and Penney are both willing to pay more for a yacht than it costs Maureen to sell one to them. Yet she can't sell to either without reducing her profit. Why? And how might firms improve upon this outcome in reality?Explanation / Answer
Price Quantity demanded Total reveune Marginal Revenue
13 1 13 -
11 2 22 9
9 3 27 5
7 4 28 1
5 5 25 -3
d. To maximize total revenue, 4 units should be sold. She will set the price at $7.