Analyzing Cost, Revenue, and Profit: An Economics Assignment

This economics assignment delves into cost, revenue, and profit analysis, examining the profitability of different insect types and a restaurant's response to a price decrease. The first part involves calculating total cost, total revenue, and profit functions for various insects, identifying break-even points, and summarizing findings regarding profitability differences. The second part focuses on analyzing the effects of a price decrease on demand, supply, equilibrium price and quantity, and restaurant revenue, including graphical representations and a summary table. The assignment requires algebraic calculations, Excel graphing, and summaries that discuss the economic implications of the analyses, including the impact of assumptions made and recommendations based on the results. The student has provided the solutions to these questions which are available on Desklib.

Course
Name
Institution Affiliation

1. Find the total cost and total revenue function for each type of insect
and plot these functions on
an Excel graph (i.e. you will produce 3 graphs, each with two lines on it).
For the revenue
function, select a price for each insect within the price ranges in the table
above.
100 200 300 400 500
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
11000
12000
13000
PINE
Total Revenue
Total Cost
AMOUNT

100 200 300 400 500
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
11000
12000
13000
14000
15000
MYRTLE
Total Revenue
Total Cost
AMOUNT
100 200 300 400 500
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
SASSAFRAS
Total Revenue
Total Cost
AMOUNT

2. Confirm any points of intersection between the cost and revenue
function lines using algebra.
For PINE
21.5x +300 = 23x
300 = 23 x – 21.5 x
300 = 1.5x
x = 200 Units
Point of intersection for PINE is at 200 Units
For MYRTLE
23.5x +300 = 28x
300 = 28 x – 23.5 x
300 = 4.5x
x = 66.7 nits
Point of intersection for MYRTLE is at 66.7 Units
For SASSAFRAS
30.5x +300 = 36x
300 = 36 x – 30.5 x
300 = 5.5x
x = 54.5 Units
Point of intersection for SASSAFRAS is at 54.5 Units
3. Find the profit functions and the break-even point for each insect, using
the sale prices chosen in part 1.
Profit = Total Revenue – Total Costs
PINE
23x – (21.5x +300)
= 1.5x – 300

MYRTLE
28x – (23.5x +300)
= 4.5x -300
SASSAFRAS
36x – (30.5x +300)
= 5.5x -300
Break Even Point = ¿ costs
Sales Revenue per unit −variable costs
PINE
= 300
23 x – 21.5 x
= 300
1.5 x
MYRTLE
= 300
28 x – 23.5 x
= 300
4.5 x
SASSAFRAS
= 300
36 x – 30.5 x
= 300
5.5 x

4. Summarize your findings in 200 words. In this summary:
a. Explain the meaning and significance of any points of intersection noted
from steps 1 and 2.
The points of intersection show the level of units where the difference
between the total revenue and total cost amounts to zero. Initially, the total costs
will be higher compared to the total revenue until it reaches a point where the
marginal revenue is higher than the marginal cost hence the point of intersection. It
therefore means that for the company to generate a profit, it has to ensure that its
sales units are roughly more than those at the intersection point (Baumol and
Blinder, 2015).
b. Discuss any differences in profitability between each type of insect (for
example, which insect would be easiest to make a profit from?)
In this case, it would be far much easier to make a profit from SASSAFRAS compared to
the other types of timber. This is because SASSAFRAS has a higher price level compared to the rest of
the insect materials as well as a wide spread between the cost and the revenues. It would be harder to
obtain a profit from PINE, this is because it has the least price of them all but the spread of the cost and
the revenues are quite low
c. Note any assumptions you have made that impact on your findings.
The major assumption for this assignment is that the units sold for all the insects
are uniform for all revenue and cost levels. This means that all the insects are
uniformly preferred by their users.
Question 2
Find the equilibrium price and quantity algebraically, without the price
decrease
Demand Equation = p=150−10 ( 0.4491 ) q
Supply Equation = p=0.00001q2+ 2 ( 0.7241 ) q+20
Equilibrium price = Demand = Supply
¿ 150−10 ( 0.4491 ) q=0.00001 q2 +2 ( 0.7241 ) q+20
¿ 150− ( 4.491 ) q=0.00001q2 + ( 1.4482 ) q +20
¿ 150−20=0.00001 q2 + ( 1.4482 ) q+ ( 4.491 ) q
130=0.00001q2+ ( 1.4482 ) q + ( 4.491 ) q

130=0.00001q2+5.9392q
p=0.00001q2+ 5.9392q−130
3. Update the demand equation to include the $15 price decrease.
p= { 150−10 ( 0.4491 ) q } −15
p= {135−10 ( 0.4491 ) q }
4. Use algebra to find the new equilibrium price and quantity, with the
cash-back.
¿ 135−10 ( 0.4491 ) q=0.00001 q2 +2 ( 0.7241 ) q+20
¿ 135− ( 4.491 ) q=0.00001q2 + ( 1.4482 ) q +20
¿ 135−20=0.00001 q2 + ( 1.4482 ) q+ ( 4.491 ) q
115=0.00001q2+ ( 1.4482 ) q + ( 4.491 ) q
115=0.00001q2+5.9392q
p=0.00001q2+ 5.9392q−115
5. Use Excel to graph on the same set of axes, the original supply and demand
equations (from part
1) and the updated demand equation with the proposed price decrease (part 3).

10 20 20 40 50
-200
-180
-160
-140
-120
-100
-80
-60
-40
-20
0
20
40
60
80
100
120
140
160
180
200
Demand Supply Linear (Supply) Updated Demand
6. Use your results to complete the following summary table. Round
answers to two decimal places, except for total revenue amounts which
round to 0 decimal places
Before After
Differenc
e
Equilibrium Quantity 20.00 20.00 0.00
Equilibrium Price - Consumer 50.00 60.00 -10.00
Equilibrium Price -Restaurant 50.00 60.00 -10.00
Equilibrium price - Restaurant Reduction 40.00 50.00 -10.00
Revenue Restaurant 1000 1200 200
Revenue Reduction 800 1000 200
7. Summarise your findings in 200 words. In this summary:
a. Discuss the effect of the price decrease on price, quantity and revenue
From the graph, the price decline led to an increase in the quantity demanded. This
means that with a reduction in the price, the customers had more consumer surplus
and therefore bought more food. Additionally, other people have been made to
afford the dinner products hence the increase in demand. Also, there was a decline

in the equilibrium price while there was an increase in the equilibrium quantity of
food demanded from the dinner. The revenue reduction was advantageous to the
business as it allowed for more people to visit the facility (Varian, 2014).
b. Provide a recommendation to the restaurant on whether to introduce
the price
decrease or not
The price decrease will work to the advantage of the business provided the costs of
the raw materials are equally low. It will enable the business to get rid of the excess
produce as a result of the lowered prices by farmers. it may also act as a good way
for the business to advertise its products (Mina & Hughes, 2013).
c. Note any assumptions you have made that impact on your findings.
One of the assumptions is that the demand and supply have equally quantities of
products at any given point. This means that there is no excess supply or demand.
Also, the other assumption is that the restaurant is the only restaurant in operation
such that its price behavior does not have an effect on other restaurants in the
market (Nicholson and Snyder, 2014).
References
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy.
Cengage Learning.
Mina, A., Lahr, H. and Hughes, A., 2013. The demand and supply of external finance
for innovative firms. Industrial and Corporate Change, 22(4), pp.869-901.
Nicholson, W. and Snyder, C.M., 2014. Intermediate microeconomics and its
application. Cengage Learning.
Varian, H.R., 2014. Intermediate Microeconomics: A Modern Approach: Ninth
International Student Edition. WW Norton & Company.