Question:

Economics - Profit?

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Assume there are only two producers of tennis rackets: Wilson and Prince. The market demand for tennis rackets is depicted by the algebraic formula P = 100 - Q, where P stands for price and Q stands for quantity of rackets. If the market were monopolized, the resulting formula for the monopolist's marginal revenue would be MR = 100 - 2Q, where MR stands for marginal revenue. Assume that both producers face a constant marginal cost of $40 and that there are no fixed costs.

3.2. When Wilson and Prince collude so as to maximize their combined profits, what is the price of tennis rackets (in dollars)?

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  1. MR=MC

    100-2Q=40

    Q=30

    Plug it into the Market Demand

    P=100-30

    P=$70


  2. Economics profit is the return to the proprietor(s) of capital stocks (machinery, tools, structures). If I lease a backhoe from a tool rental company the amount I pay to the backhoe owner it is "interest" (i.e. the return to loaned stock/money).

    Profit is the difference between the wages that would have been required excavating by hand, and the smaller amount of wages required using the machine. And from this profit "interest" is paid.

    The diminution of the capital stock of the society, or of the funds destined for the maintenance of industry, however, as it lowers the wages of labor, so it raises the profits of stock, and consequently the interest of money. By the wages of labor being lowered, the owners of what stock remains in the society can bring their goods at less expense to market than before, and less stock being employed in supplying the market than before, they can sell them dearer.*70 Their goods cost them less, and they get more for them. Their profits, therefore, being augmented at both ends, can well afford a large interest. The great fortunes so suddenly and so easily acquired in Bengal and the other British settlements in the East Indies, may satisfy us that, as the wages of labor are very low, so the profits of stock are very high in those ruined countries. The interest of money is proportionally so.
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