Author Question: Refer to Figure 13-15 to answer the following questions. a. What is the profit-maximizing output ... (Read 69 times)

appyboo · **on:** Jun 29, 2018

Refer to Figure 13-15 to answer the following questions.

a. What is the profit-maximizing output level?
b. What is the profit-maximizing price?
c. What is the average total cost at the profit-maximizing output level?
d. What area represents the firm's profit?
e. At which output level are economies of scale exhausted?
f. Does this graph most likely represent the long run or the short run? Why?

Question 2

Music writer Anthony Kuzminski praised rock star Tom Petty in a 2007 article in the online Unrated Magazine. Kuzminski wrote: Something Petty never can get enough credit for is his fan-friendly attitude.

He kept ticket prices for his concerts at 50 when other acts this summer are charging upwards of 100 for stadium gigs. Petty could charge more, but he doesn't see the point. He has stated time and time again he still makes millions when he's on the road, regardless of his ticket prices. He is the last of the fan friendly rock stars out there. Use economic reasoning to write a rationale for Tom Petty's decision to charge prices for his band's (Tom Petty and the Heartbreakers) concerts that are less than market clearing prices.
Source: Anthony Kuzminski, Tom Petty & The Heartbreakers at the Vic Theater http://www.unratedmagazine.com/

zacnyjessica · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

a. The profit maximizing level of output is Q4.
b. The profit-maximizing price is P4.
c. The ATC at the profit-maximizing output level is P2.
d. The firm's profit is represented by area P2P4ed.
e. Economies of scale are exhausted at output Q3.
f. Since the graph displays a profit, it most likely represents the short run.

Answer to Question 2

Tickets to Tom Petty's concerts consistently sell at prices lower than tickets to concerts by other well-known rock bands. This means that he and the Heartbreakers earn lower profits in the short run but his actions ensure the loyalty of concert goers, and profits, in the long run.