The Table Below Shows the Demand and Cost Data Facing

question 65

Essay

The table below shows the demand and cost data facing 'Velvet Touches',a monopolistically competitive producer of velvet throw pillows.
$$\begin{array} { | c | c | c | c | c | c | } \hline \text { Quantity } & \begin{array} { c } \text { Price } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total } \\\text { Revenue }\\\text { (dollars) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Revenue } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Cost }\\\text { (dollars) }\\\end{array} \\\hline 1 & 30 & & & 32 & \\\hline 2 & 28 & & & 43 & \\\hline 3 & 26 & & & 53 & \\\hline 4 & 24 & & & 64 & \\\hline 5 & 22 & & & 76 & \\\hline 6 & 20 & & & 90 & \\\hline 7 & 18 & & & 106 & \\\hline 8 & 16 & & & 126 & \\\hline\end{array}$$ Use the data to answer the following questions.
a.Complete the Total Revenue (TR),Marginal Revenue (MR),and Marginal Cost (MC)columns above.
b.What are the profit-maximising price and quantity for Velvet Touches?
c.Is the firm making a profit or a loss? How much is the profit or loss? Show your work.
d.Is this firm operating in the long run or in the short run? Explain your answer.
e.If the firm's profit or loss is typical of all firms in the market for throw pillows,what is likely to happen in the future? Will there be more firms or will some existing firms leave the industry? Explain your answer.
f.What will happen to the typical firm's profit or loss after all entry/exit adjustments?
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Definitions:

Cash Flows

The total amount of money being transferred into and out of a business, particularly regarding calculating its operating, investing, and financing activities.

Discount Rate

Utilized in discounted cash flow analysis, this rate assists in calculating the present worth of forthcoming cash flows.

Net Present Value

A calculation that compares the value of all cash inflows and outflows of a project or investment using a discount rate to present day.

Internal Rate

Often shorthand for Internal Rate of Return (IRR), this is a metric used in financial analysis to estimate the profitability of potential investments.