9781118041581

Summary 59

Spreadsheet Problems

S1. A manufacturer of spare parts faces the demand curve,

and produces output according to the cost function,

a. Create a spreadsheet modeled on the example shown.^7 (The only

numerical value you should enter is the quantity in cell B7. Enter appro-

priate formulas to compute all other numerical entries.)

b. What is the firm’s profit-maximizing quantity and price? First, deter-

mine the solution by hand, that is, by changing the quantity value in

cell B7. (Hint:Keep an eye on MR and MC in finding your way to the

optimal output.)

c. Use your spreadsheet’s optimizer to confirm your answer to part (a).

C20,000200Q.5Q^2.

P 800 2Q,

ABCDEFG

1

2 THE OPTIMAL OUTPUT OF SPARE PARTS

3

4

5 Quantity Price Revenue Cost Profit

6

7 20 760 15,200 24,200 9,000

8

9

10 MR MC Mprofit

11

12 720 220 500

13

(^7) This chapter’s special appendix reviews the basics of creating, using, and optimizing spreadsheets.
S2. Your firm competes with a close rival for shares of a $20 million per year
market. Your main decision concerns how much to spend on advertising
each year. Your rival is currently spending $8 million on advertising. The
best estimate of your profit is given by the equation
where A is your firm’s advertising expenditure (in millions of dollars).
According to this equation, the firms’ shares of the $20 million market are

20[A/(A8)]A,

c02OptimalDecisionsUsingMarginalAnalysis.qxd 8/17/11 5:17 PM Page 59