+1443 776-2705 panelessays@gmail.com
  

see attachment


Redstone Clayworks, Inc. is located in Sedona, Arizona and manufactures clay fire pits for patios. They are one of about two dozen firms around the world that manufacture and sell clay fire pits for retailers such as Home Depot, Lowe’s, Front Gate, and other upscale home product chains. There is virtually no product differentiation.  A clay fire pit is a clay fire pit.
 

Assume that the world market demand and supply curves for clay fire pots intersects at $300 per unit.

 

The spreadsheet below gives some of Redstone’s production cost data.

 


Q  


  TC  


  TFC  


  TVC

0

         6,000

       6,000

             –  

100

       12,000

       6,000

      6,000

200

       15,000

       6,000

      9,000

300

       21,000

       6,000

    15,000

400

       33,000

       6,000

    27,000

500

       48,000

       6,000

    42,000

600

       65,000

       6,000

    59,000

700

       83,000

       6,000

    77,000

800

     102,000

       6,000

    96,000

900

     123,000

       6,000

  117,000

1000

     158,000

       6,000

  152,000

 

 

Add columns to show, respectively, average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), and short-run marginal cost (SMC). Then, add columns to show, respectively, total revenue (TR), marginal revenue (MR), total profit, average profit, and profit margin.

Your spreadsheet must include formulas showing how you arrived at the calculations.  Also, create a document showing your step-by-step calculations for each of the cells. 

For Questions 2, 4, and 5, be sure to employ both of the General Rules for Implementing the Output Decision in explanations.

 

1. If Redstone wishes to maximize profit margin, how many units should it produce?   

2. What level of output should the manager of Redstone choose to produce? Explain your choice in at least 100 words. 

3. Are your output choices the same in questions 1 and 2?  Why or why not?  Explain using at least 100 words.

4. Make a copy of your spreadsheet and double the fixed costs. How does this change your answer to question 2?  Explain in detail.

5. Make another copy of your spreadsheet and suppose that fire pits fall out of fashion causing prices fall worldwide to $85. How many units should the manager choose to produce?  Explain.

6. Should the firm shut down in the short-run?  Explain in detail why or why not.

7. Should the firm shut down in the long run?  Explain in detail why or why not.

8. Airline industry experts generally believe that because of the “highly competitive” nature of U.S. airline markets, it is usually impossible to pass on higher jet fuel prices to passengers by raising ticket prices.

 What factors do you suppose contribute to making U.S. airline markets “highly competitive”?

Accepting the premise that U.S. airline markets are indeed highly competitive, analyze in both the short run and long run the difficulty of raising ticket prices when jet fuel prices rise.