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BUS 640 ? A small business which produces plastic vacuum-suction covers for round household dishes has a monopoly that is protected by a utility patent.

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A small business which produces plastic vacuum-suction covers for round household dishes has a monopoly that is protected by a utility patent. The market demand curve for this product is estimated to be: Q = 6009 ? 25P where Q is the number of plate covers per year and P is in dollars. Cost estimation processes have determined that the firm?s cost function is represented by TC = 120 + 2500Q -0.25*Q2.;(i) What is the profit-maximizing price and output level? Solve this algebraically for equilibrium P and Q and also plot the MC, D and MR curves and illustrate the equilibrium point.;Solution;The demand function is Q = 6009 ? 25P.;The inverse demand function is;P = 240.36 ? 0.04Q;TR = P*Q;= 240Q ? 0.04Q^2;MR = 240 ? 0.08Q;MC = 2500 ? 0.5Q;To maximize profit, MR = MC;240 ? 0.08Q = 2500 ? 0.5Q;500 -0.5Q = 240 -0.08Q;Q = 5381 and P

 

Paper#22913 | Written in 18-Jul-2015

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