Suppose that you have a management job at a firm like Estrella River Ranch, a beautiful vineyard and one of more than 200 vineyards growing cabernet sauvignon grapes in California. Assume that the market is perfectly competitive. Also, assume that you cannot instantly change production when demand changes, and grapes cannot be stored, so your firm must sell all of the grapes it grows. The adjacent figure (Figure A) shows the situation at your California vineyard. If demand is high, the price is $3,000 per ton of grapes, and if the price is low, the price is $1,000 per ton of grapes. Producing 300 tons of grapes maximizes your firm's expected profit. Suppose that there is no fixed cost. If demand is high and your firm produces 300 tons of grapes, its economic profit on the tons of grapes between 100 and 300 tons is $ If demand is low and your firm produces 300 tons of grapes, its economic loss on the tons of grapes between 100 and 300 tons is dollars. (Enter a negtive sign to indicate a loss.) Figure A $3,500- Q MC $3,000- $2,500 E[MR] $2,000- $1,500- Price and cost (dollars ton of grapes) $1,000 $500- $0- 0 100 200 300 400 500 600 700 800 900 Quantity (tons of grapes per year)
Suppose that you have a management job at a firm like Estrella River Ranch, a beautiful vineyard and one of more than 200 vineyards growing cabernet sauvignon grapes in California. Assume that the market is perfectly competitive. Also, assume that you cannot instantly change production when demand changes, and grapes cannot be stored, so your firm must sell all of the grapes it grows. The adjacent figure (Figure A) shows the situation at your California vineyard. If demand is high, the price is $3,000 per ton of grapes, and if the price is low, the price is $1,000 per ton of grapes. Producing 300 tons of grapes maximizes your firm's expected profit. Suppose that there is no fixed cost. If demand is high and your firm produces 300 tons of grapes, its economic profit on the tons of grapes between 100 and 300 tons is $ If demand is low and your firm produces 300 tons of grapes, its economic loss on the tons of grapes between 100 and 300 tons is dollars. (Enter a negtive sign to indicate a loss.) Figure A $3,500- Q MC $3,000- $2,500 E[MR] $2,000- $1,500- Price and cost (dollars ton of grapes) $1,000 $500- $0- 0 100 200 300 400 500 600 700 800 900 Quantity (tons of grapes per year)
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.11P
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Question
![Suppose that you have a management job at a firm like Estrella River Ranch, a beautiful vineyard and one of more than 200 vineyards
growing cabernet sauvignon grapes in California. Assume that the market is perfectly competitive. Also, assume that you cannot instantly
change production when demand changes, and grapes cannot be stored, so your firm must sell all of the grapes it grows.
The adjacent figure (Figure A) shows the situation at your California vineyard. If demand is high, the price is $3,000 per ton of grapes,
and if the price is low, the price is $1,000 per ton of grapes. Producing 300 tons of grapes maximizes your firm's expected profit. Suppose
that there is no fixed cost.
If demand is high and your firm produces 300 tons of grapes, its economic profit on the tons of grapes between 100 and 300 tons is $
If demand is low and your firm produces 300 tons of grapes, its economic loss on the tons of grapes between 100 and 300 tons is
dollars.
(Enter a negtive sign to indicate a loss.)
Figure A
$3,500-
Q
MC
$3,000-
$2,500
E[MR]
$2,000-
$1,500-
Price and cost (dollars
ton of grapes)
$1,000
$500-
$0-
0
100 200 300 400 500 600 700 800 900
Quantity (tons of grapes per year)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F49115f2a-db7f-4640-85b7-900e6d800986%2Faa547007-9ec2-4fe3-8f03-e5788d37fb88%2Fhyxmc6p_processed.png&w=3840&q=75)
Transcribed Image Text:Suppose that you have a management job at a firm like Estrella River Ranch, a beautiful vineyard and one of more than 200 vineyards
growing cabernet sauvignon grapes in California. Assume that the market is perfectly competitive. Also, assume that you cannot instantly
change production when demand changes, and grapes cannot be stored, so your firm must sell all of the grapes it grows.
The adjacent figure (Figure A) shows the situation at your California vineyard. If demand is high, the price is $3,000 per ton of grapes,
and if the price is low, the price is $1,000 per ton of grapes. Producing 300 tons of grapes maximizes your firm's expected profit. Suppose
that there is no fixed cost.
If demand is high and your firm produces 300 tons of grapes, its economic profit on the tons of grapes between 100 and 300 tons is $
If demand is low and your firm produces 300 tons of grapes, its economic loss on the tons of grapes between 100 and 300 tons is
dollars.
(Enter a negtive sign to indicate a loss.)
Figure A
$3,500-
Q
MC
$3,000-
$2,500
E[MR]
$2,000-
$1,500-
Price and cost (dollars
ton of grapes)
$1,000
$500-
$0-
0
100 200 300 400 500 600 700 800 900
Quantity (tons of grapes per year)
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