# Profit maximization: Ejercicio típico de Economía

Comentarios del Tutor: Este es un ejercicio bastante común en las sesiones de Economía. No es complicado pero a veces el estudiante no sabe cómo empezar. Edité un poco la sesión para enfatizar que es muy importante hacer que el estudiante complete las columnas, haga los cálculos y justifique la respuesta. Al final el objetivo es lograr que el estudiante se sienta dueño de la respuesta después de haber pensado un poco. A continuación la sesión:

Student: A bank in a medium-sized midwestern city, Firm X, currently charges \$1 per transaction at its ATMs. To determine whether to raise price, the bank managers experimented with a number of higher prices (in 25-cent increments) at selected ATMs. The marginal cost of an ATM transaction is \$0.50. ATM Fee Usage \$2 1,000 \$1.75 1,500 \$1.50 2,000 \$1.25 2,500 \$1.00 3,000 What ATM fee should the bank charge?

Tutor: Hi, how are you?

Student: Hello

Tutor: I see you have a profit maximization problem. Did you start solving this?

Student: No. I’ve been trying to solve it, but have had issues for quite some time. I don’t know how to start.

Tutor: In this kind of problem it’s good to have all the information in a table. Please see the whiteboard. We have information of the price, the quantity demanded and the marginal cost.

Student: The fee is the price, right?

Tutor: Yes, that’s what the bank receives for each transaction.

Student: Alrighty.

Tutor: In the whiteboard I put a table with 5 columns, let’s complete it with your information

Student: OK

Tutor: Do you know what profit is?

Student: Like, the equation?

Tutor: The concept

Student: Yes

Tutor: Can you please tell me?

Student: Does it matter if its economic or accounting profit?

Tutor: In this case both are the same, profit is just the difference between revenue and cost. Can you please complete the columns of revenue and profit? Remember that revenue equals P*Q

Student: Working on it

Student: Finished

Tutor: Let me check. The revenue is correct but not the profit. Profit = total revenue – total cost. Keep in mind that each transaction cost 0.5

Student: Then MC*Q = TC?

Tutor: Yes!!! Can you please complete that column?

Student: Done

Tutor: Perfect, now we can answer our question. What ATM fee should the bank charge?

Student: Not sure

Tutor: Remember we need to maximize the profit.

Student: Then it should be 1.5

Tutor: Why?

Student: Because it gives you the largest profit

Tutor: Exactly!!! That’s correct =)

Student: wonderful! Thanks!!

Tutor: You’re welcome. Do you have any question about anything we went over today?

Student: makes sense…gotcha. Thanks man 🙂 Spent forever getting this done!! Thanks!! Enjoy your evening

Tutor: You too, have a good night.

Colaborador: Jaime Vargas, Tutor Boliviano de Economía

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