Refer to Scenario 12.3. What is the profit maximizing price?

A) 205.72
B) 240
C) 210
D) all of the above
E) none of the above

Question

Refer to Scenario 12.3. What is the profit maximizing price?A)  205.72B)  240C)  210D)  all of the aboveE)  none of the above

Buenos Aires Dimaano · Accepted Answer

Final Answer : C, Explanation :  The profit maximizing price can be determined by finding the point at which Marginal Revenue (MR) equals Marginal Cost (MC). In this scenario, we know that MC=$80 and the demand function is P = 500 - Q. Therefore, MR can be found by taking the derivative of the demand function, which is MR = 500 - 2Q. Setting MR equal to MC and solving for Q, we get Q = 210. Plugging this value back into the demand function, we get P = 500 - 210 = 290. However, we also know that there is a fixed cost of $80,000, which needs to be accounted for. Total revenue at the profit-maximizing output level of 210 units is 210*290=$60,900. Subtracting the total cost of $80,000 from the total revenue gives us a profit of $-19,100. Therefore, the company should not produce any units as it would result in a loss. The optimal price, in this case, is not applicable.

Refer to Scenario 12.3. What is the profit maximizing price?

A) 205.72
B) 240
C) 210
D) all of the above
E) none of the above

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