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Economic Unit 6

The El Dorado Star is the only newspaper in El Dorado, New Mexico. Certainly, the Star competes with The Wall Street Journal, USA Today, and the New York Times for national news reporting, but the Star offers readers stories of local interest, such as local news, weather, high-school sporting events, and so on. The El Dorado Star faces the revenue and cost schedules shown in the spreadsheet that follows:

A template for the spreadsheet is provided in the Course Materials. Since we are using dollars and cents, be sure to go out two decimal places on your calculations. Add columns to show, respectively, marginal cost (MC), marginal revenue (MR), and total profit.

Place your completed spreadsheet in the Drop Box, and use it to answer the following questions. Your spreadsheet is worth 15 points.

Your spreadsheet must include formulas showing how you arrived at the calculations. As an alternative, you may also submit a document showing your step-by-step calculations for each of the cells. You will not receive credit if you do not show your work using one of these two methods.

Number of newspapers per day (Q)

Total revenue (including advertising revenues) per day (TR)

Total cost per day (TC)

0

0

3800

1000

3500

3900

2000

4500

4000

3000

5000

4160

4000

5250

4320

5000

5450

4500

6000

5625

4690

7000

5725

4890

8000

5625

5110

9000

5475

5350

  1. What is the value of MR and MC when Q = 8,000?
  2. How many papers should the manager of the El Dorado Star print and sell daily? Explain your choice in at least 100 words.
  3. How much profit (or loss) will the Star earn at the level of output you chose in #3?
  4. At the profit-maximizing output level you reported in question 3, is the El Dorado Star making the greatest possible amount of TOTAL REVENUE? Explain in at least 100 words why or why not.
  5. What is total fixed cost for Star? Explain how you found this result.
  6. Suppose Star's total fixed costs were to DOUBLE for some reason. Create a second spreadsheet to show this change.

Should the Star shut down or continue to produce in the short-run? If they should continue to produce, how many papers should they produce? Explain your result in at least 100 words. Be sure to include total profit in your explanation.