Suppose that a paper mill "feeds" a downstream box mill. For the downstream mill, the marginal profitability ofproducing boxes declines with volume. For example, the first unit of boxes increases earnings by $30, the second by $27, the third by $24, and so on, until the tenth unit increases profit by just $3. The cost the upstream mill incurs forproducing enough paper (one "unit" of paper) to make one unit of boxes is $9.50. Assume the two mills operate asseparate profit centers, and the paper mill sets the price of paper. It follows that the marginal profitability of boxesrepresents the highest price that the box division would be willing to pay the paper division for boxes.. Furthermore,assume that fixed costs are $0 for the paper mill. The following table summarizes the quantity, total revenue, andmarginal costs from the perspective of the paper mill for selling paper to the box mill at various prices. In the followingtable, fill in the marginal revenue, total cost, and total profit for the paper mill when selling paper to the box mill at eachgiven price. \table[[\table [[Price], [(Marginal], [Profitability to], [the Box Mill)], [($)]], \table[[Quantity], [(Units of Paper], [equivalent to], [One Box)]], \table[[Total], [Revenue]], Marginal revenue, Total Cost,\table[[Marginal], [Cost], [(S)]], Profit], [$30, 1, $30,, $9.50,,], [$27,2,$54,...]. [$24, 3, $72,...]. [$21, 4, $84,...]. [$18,5, $90,...]] (Marginal If the paper mill sets theprice of paper to sell to the box mill, it will set a price of for the paper mill. Companywide profits will be and sell units ofpaper to the box mill. Profits will be marginal profitability of each unit of paper, or box, to the box mill.) (Hint: Recall thatthe prices in the table represent the Suppose the paper mill is forced to transfer paper to the box mill at marginal cost ($9.50). (MarginalProfitability tothe Box Mill)(Units of Paperequivalent to(s)One Box)($)($)$30($)1$30$9.50$272$54$243$72$21$84$18.$90$156$90$127$84$98$72$69$310$54$30($)($)$9.50$$$$9.50$$9.50$9.50$9.50$$9.50$$9.50$9.50$9.50and sellunits of paper to the box mill. Profits will be(Hint: Recall that the prices in the table represent theIf the paper mill sets the price of paper to sell to the box mill, it will set a price offor the paper mill. Companywide profits will be$marginal profitability of each unit of paper, or box, to the box mill.)Suppose the paper mill is forced to transfer paper to the box mill at márginal cost ($9.50).

Marginal Revenue (MR): Marginal Revenue is the additional revenue that a firm earns from selling one…

Suppose that a paper mill "feeds" a downstream box mill. For the downstream mill, the marginal profitability of producing boxes declines with volume. For example, the first unit of boxes increases earnings by $30, the second by $ 27, the third by $24, and so on, until the tenth unit increases profit by just $3. The cost the upstream mill incurs for producing enough paper (one "unit" of paper) to make one unit of boxes is $9.50. Assume the two mills operate as separate profit centers, and the paper mill sets the price of paper. It follows that the marginal profitability of boxes represents the highest price that the box division would be willing to pay the paper division for boxes.. Furthermore, assume that fixed costs are $0 for the paper mill. The following table summarizes the quantity, total revenue, and marginal costs from the perspective of the paper mill for selling paper to the box mill at various prices. In the following table, fill in the marginal revenue, total cost, and total profit for the paper mill when selling paper to the box mill at each given price. \table[[\table[[Price], [(Marginal], [Profitability to], [the Box Mill)], [(S)]]. \table[[Quantity], [(Units of Paper], [ equivalent to], [One Box)]], \table[[Total], [Revenue]], Marginal revenue, Total Cost,\table[[Marginal], [Cost], [(S)]], Profit], [$ 30, 1, $30,, $9.50,,], [$27, 2, $54,...]. [$24, 3, $72,...]. [$21,4, $84,...]. [$18,5, $90,...]] (Marginal If the paper mill sets the price of paper to sell to the box mill, it will set a price of for the paper mill. Companywide profits will be and sell units of paper to the box mill. Profits will be marginal profitability of each unit of paper, or box, to the box mill.) (Hint: Recall that the prices in the table represent the Suppose the paper mill is forced to transfer paper to the box mill at marginal cost ($ 9.50).

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: Firms In Competitive Markets

Section: Chapter Questions

Problem 4PA