Professor Popkiss's Business: Market Analysis and Profit Maximization

This assignment analyzes the economic aspects of Professor Popkiss's business, starting with an examination of the market structure he operates in. It involves calculating total revenue, marginal revenue, total costs, and various cost curves to determine profit-maximizing output and price. The assignment further explores the shape of the short-run average total cost curve and the conditions for earning profits in the long run, utilizing diagrams to illustrate these concepts. Part B of the assignment introduces a different demand curve, requiring an analysis of the new market structure, the determination of a new profit-maximizing price and output, and the calculation of the point elasticity of demand. Finally, the assignment concludes with advice for Professor Popkiss on maintaining profitability in the long run, considering various business tactics and strategies.

Coursework
Professor Popkiss is a retired scientist who enjoys, in his spare time, restoring old clocks
and watches to their former glory. Now that he is retired from academic life, he is
thinking about pursuing his hobby on a more commercial basis by setting up his own
shop called ‘Time to Go’ in Milsom Street, Bath.
A former colleague, Dr Beaker, carries out some market research on Professor
Popkiss’s behalf and estimates the following information:
Average
Revenue (AR) £’s
Number of clocks
restored per week
(q)
Total Costs
0 0 400
30 10 420
30 20 480
30 30 580
30 40 720
30 50 900
30 60 1120
30 70 1380
30 80 1680
30 90 2020
Part A
(1). From the evidence provided in the table what type of market do you think
Professor Popkiss would be entering? Would you enter this market? Explain your
reasoning (5 marks).
(2). Calculate Total Revenue (TR), Marginal Revenue (MR), Total Costs (TC), Average
Fixed Costs (AC), Average Variable Costs (AVC), Average Total Costs (ATC),
Marginal Costs (MC) and Profits (∏) for each level of output (q). (Write your results
in tabular format) (6 marks)
(3). Explain the shape of Professor Popkiss’s short run ATC curve (4 marks).
(4). How many clocks should Professor Popkiss restore in order to earn maximum

profits? And what price should he charge for restoring them? Explain your answer (4
marks).
(5). On graph paper, plot accurately the ATC, MC, AR and MR functions for Professor
Popkiss’s business. Clearly indicate the profit-maximising price and output and shade
in the area representing profits. (5 marks)
(6). Under what conditions can Professor Popkiss earn these profits in the long run?
Use relevant diagrams and explain your answer fully (6 marks).
Part B
Assume now that Professor Popkiss faces the demand curve below (note the cost
function is the same as before):
q 0 10 20 30 40 50 60 70 80 90
p 50 48 46 44 42 40 38 36 34 32
(7). What type of market do you think Professor Popkiss is now operating in? Explain
your answer fully (3 marks).
(8). What is the profit maximising price and level of output for Professor Popkiss’s
business? Why is your answer different to that calculated in (5) above? (5 marks).
(9). What is the point elasticity of demand at this profit maximising price and level of
output and why is this information useful to Professor Popkiss? (4 marks)
(10). Advise Professor Popkiss about his options and tactics if he wishes to stay in
business and maintain this level of profits in the long run (8 marks).