To wrap up some of the concepts mentioned in the tabs above, here is a problem that combines many of the different things that were mentioned:
Suppose an economy makes teddy bears, dolls, and train sets. They sell teddy bears for $7.50, dolls for $11.80, and train sets for $18.99. One year they sold 19,564 teddy bears, 22,542 dolls, and 18,986 train sets. What is their nominal GDP for the year?
Don't remember how to find nominal GDP? Go back to the GDP section under Free Enterprise.
The next year, the prices rise. Now teddy bears are $9.50, dolls are $12.99, and train sets sell at $17.95. They happen to sell 21,023 teddy bears, 21,546 dolls, and 20,569 train sets. What is their nominal GDP? What is the real GDP for this year? Did they make a greater profit from last year?
Answer:
They earned more on the teddy bears and trains sets; however they lost money on the dolls since the dolls were not in as much of a demand at a higher price. Raising the price for the teddy bears was the most beneficial for this economy since even at a higher price there was a still a high demand, if not even higher of a demand. Even though the cost of the train set went down, the demand went up, most likely since out of all the competitors, they had the lowest price. The explanation for the dolls could be that there were alternatives and the demand for the good was elastic. People went for the cheaper good. However for the teddy bears, this company could have a monopoly over them and so whatever they price is people are going to be willing to buy the bears.
Suppose an economy makes teddy bears, dolls, and train sets. They sell teddy bears for $7.50, dolls for $11.80, and train sets for $18.99. One year they sold 19,564 teddy bears, 22,542 dolls, and 18,986 train sets. What is their nominal GDP for the year?
Don't remember how to find nominal GDP? Go back to the GDP section under Free Enterprise.
The next year, the prices rise. Now teddy bears are $9.50, dolls are $12.99, and train sets sell at $17.95. They happen to sell 21,023 teddy bears, 21,546 dolls, and 20,569 train sets. What is their nominal GDP? What is the real GDP for this year? Did they make a greater profit from last year?
Answer:
They earned more on the teddy bears and trains sets; however they lost money on the dolls since the dolls were not in as much of a demand at a higher price. Raising the price for the teddy bears was the most beneficial for this economy since even at a higher price there was a still a high demand, if not even higher of a demand. Even though the cost of the train set went down, the demand went up, most likely since out of all the competitors, they had the lowest price. The explanation for the dolls could be that there were alternatives and the demand for the good was elastic. People went for the cheaper good. However for the teddy bears, this company could have a monopoly over them and so whatever they price is people are going to be willing to buy the bears.
However, we have not taken into account the amount that it would cost to produce these items.
In order to produce a teddy bear, a doll, or a train set,
the fixed cost is $8. To make one teddy bear, is cost $1.98. To make a doll, it
cost $3.55. To make a train set, it cost $5.12. In the first year, how much
would it cost to make 19,564 teddy bears, 22,542 dolls, and 18,986 train sets?
If they sold the teddy bears at $7.50, the dolls at $11.80, and the train sets
at $18.99, what would be the revenue if all the items were sold? What would be
the total profit, taking into consideration the total cost and the total
revenue?
Answer:
By taking into account the total cost for making each item, we see making teddy bears hurt the company since they earned a negative profit on the items. However, train sets earned them the most profit. Taking these things into consideration, the economy was still able to earn a profit off their items, even though some was lost off the teddy bears. Here are the production costs for making the items in the first year:
Answer:
By taking into account the total cost for making each item, we see making teddy bears hurt the company since they earned a negative profit on the items. However, train sets earned them the most profit. Taking these things into consideration, the economy was still able to earn a profit off their items, even though some was lost off the teddy bears. Here are the production costs for making the items in the first year:
The company earned $68,564.60 during the first year. Taking
this information into account, the company now looks at what they can change
and how they can earn more profit off their sales. However they first have to take into account
the changing prices from their suppliers.
It now cost $1.98 to make a teddy bear, $3.65 to make a doll, and $4.99 to make a train set. Suppose they make 21,023 teddy bears, 21,546 dolls, and 20,569 train sets and sell each one they make. Teddy bears were sold at $9.50, dolls are sold at $12.99, and train sets were sold at $17.95. How much would it cost them to make these items? What would be their revenue if all the items that were made were sold? What would be their total profit?
Answer: Overall, they still lost profit on the teddy bears, yet they did not lose as much as the year before. They were able to earn more profit on the dolls, yet they lost some revenue on the train sets. Overall they earned more profit this year than the year before. However, we have to take into account the fact that all of this was done with the new prices.
It now cost $1.98 to make a teddy bear, $3.65 to make a doll, and $4.99 to make a train set. Suppose they make 21,023 teddy bears, 21,546 dolls, and 20,569 train sets and sell each one they make. Teddy bears were sold at $9.50, dolls are sold at $12.99, and train sets were sold at $17.95. How much would it cost them to make these items? What would be their revenue if all the items that were made were sold? What would be their total profit?
Answer: Overall, they still lost profit on the teddy bears, yet they did not lose as much as the year before. They were able to earn more profit on the dolls, yet they lost some revenue on the train sets. Overall they earned more profit this year than the year before. However, we have to take into account the fact that all of this was done with the new prices.
In both years, teddy bears did not earn any profit. As they make more teddy bears, what happens to the gap between the cost and revenue?
Answer:
The gap grows larger for the more teddy bears they make the more in debt they go. The more they owe since they are further “in the hole.”
Answer:
The gap grows larger for the more teddy bears they make the more in debt they go. The more they owe since they are further “in the hole.”
By going over what they had earned the year before, the company was able to earn a greater profit. If you could change what this company, what would you do and how would you change it? Why? Explain your reasoning using different things you have learned.