9781118041581

Summary 265

her building and a $20,000 offer to manage a rival’s arcade. She

recognizes that a normal return on a risky investment such as the arcade

is 20 percent.

a. As a profit maximizer, how many games should she order?

b. What is her economic profit?

6. Suppose the manufacturer of running shoes has collected the following
   quantitative information. Demand for the boys’ shoe is estimated to be
   Q 9,600 200P, or, equivalently, P  48 Q/200. The shoe’s direct
   cost is C $60,000 .0025Q^2.
   a. Check that these demand and cost equations are consistent with the
   data presented in the “Allocating Costs Revisited” section.
   b. Find the firm’s profit-maximizing price and output.


7. You are a theater owner fortunate enough to book a summer box office
   hit into your single theater. You are now planning the length of its run.
   Your share of the film’s projected box office is R 10w  .25w^2 , where R
   is in thousands of dollars and w is the number of weeks that the movie runs.
   The average operating cost of your theater is AC MC $5 thousand
   per week.
   a. To maximize your profit, how many weeksshould the movie run? What
   is your profit?
   b. You realize that your typical movie makes an average operating profit
   of $1.5 thousand per week. How does this fact affect your decision in
   part (a), if at all? Explain briefly.
   c. In the last 25 years, stand-alone movie theaters have given way to
   cineplexes with 4 to 10 screens and megaplexes with 10 to 30 screens
   (yes, 30 screens!) under one roof. During the same period, total annual
   movie admissions have barely changed. What cost factors can explain
   this trend? In addition, what demand factors might also be relevant?
   d. The film’s producer anticipated an extended theater run (through
   Labor Day) and accordingly decided to move back the DVD release of
   the film from Thanksgiving to January. Does the decision to delay
   make sense? Explain carefully.


8. Firm A makes and sells motorcycles. The total cost of each cycle is the
   sum of the costs of frames, assembly, and engine. The firm produces its
   own engines according to the cost equation:

The cost of frames and assembly is $2,000 per cycle. Monthly demand for

cycles is given by the inverse demand equation P 10,000 30Q.

a. What is the MC of producing an additional engine?What is the MC of

producing an additional cycle?Find the firm’s profit-maximizing

quantity and price.

CE250,0001,000Q5Q^2.

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