ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Marginal Analysis II Question 3
Assume that a monopolist faces a demand curve for its product given by:
p=100−1qp=100-1q
Further assume that the firm's cost function is:
TC=470+9qTC=470+9q
Using calculus and formulas (don't just build a table in a spreadsheet as in the previous lesson) to find a solution, what is the profit (rounded to the nearest integer) for the firm at the optimal price and quantity?
Round the optimal quantity to the nearest hundredth before computing the optimal price, which you should then round to the nearest cent. Note: Non-integer quantities may make sense when each unit of q represents a bundle of many individual items.
Hint 1: Define a formula for Total Revenue using the demand curve equation. Then take the derivative of the Total Revenue and Total Cost formulas to compute the Marginal Revenue and Marginal Cost formulas, respectively. Use these Marginal Revenue and Marginal Cost formulas to perform a marginal analysis.
Hint 2: When computing the total revenue component of total profit for each candidate quantity, use the total revenue function computed from the demand curve equation (rather than summing the marginal revenues using the marginal revenue function).
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