Your goal in this simulation is to maximize Ostrich Burger's profit
by making decisions in response to changing market conditions.
In the short run, Marge must decide how many burgers she'll produce
or what price she will charge for them. You set these factors by adjusting
the quantity and price sliders on the graph. Note that when you move one
slider the other automatically changes according to the demand curve. Why?
Because even though Ostrich Burger is a monopoly, it is still subject to
the market demand curve.
In the short run, Marge's restaurant is a fixed asset. But in the long
run it is not--Marge can build larger or smaller facilities. If Marge built
a larger restaurant, she would increase her capacity and could therefore
make more burgers. On the graph, her cost curves would shift to the right.
Conversely, if Marge scaled down to a smaller restaurant her cost curves
would shift to the left. Why does Marge need to think about her plant size?
Because if she wants to maximize her long-term profits, she needs to operate
where she is most efficient: at or near the minimum of her average total
cost (ATC) curve. Hint: If Marge's profit-maximizing level of output
is to the right of the minimum point on the ATC curve, she is probably
in too small a plant. If her profit-maximizing level of output is to the
left of her minimum ATC, she is probably in too large a plant.
In the long run Marge can also change how much advertising she does.
Increases in advertising will result in a corresponding rise in the demand
for O-Burgers. However, advertising costs money, so Marge's total costs
will go up. Conversely, less advertising will result in lower costs for
Marge - but the demand for her product will drop as well. You should experiment
with advertising to try and find the appropriate level of advertising for
Marge's market conditions.
1. When you start the simulation you are presented with a choice
of market conditions. Browse the six different newspaper headlines and
select one to begin with.
2. In each round, adjust short-term and/or long-term factors
to maximize Ostrich Burger's profits. When you are ready with your response,
click the "Accept Values" button. Keep your eye on the clock! You have
60 seconds to make your choices.
3. At the end of each round, your profit will be shown in the table
and the graph will be updated to reflect your response. The clock will
reset for the next round and new market conditions will be displayed in
the newspaper headline. At the end of five rounds, your total short-run
profit will be calculated.
Hint: You may want to practice maximizing profit by adjusting
only short-term factors at first. Then, when you are comfortable with the
simulation, you can add plant capacity and advertising as additional challenges.
(Note that if only short-term changes are made, the graph and profit totals
will be affected, but the market condition will not change, and the newspaper
headline "Ostrich Burger Stays the Course" will continue to appear.)
P = price
Q = quantity
ATC = average total cost
AVC = average variable cost
MR = marginal revenue
MC = marginal cost