Hi,
There is a q in mock exam for profit maximization price :
SP is $ 200 where the demand is 100,000 units
if the price change by $ 30 the demand change by 10000 units
FC is $ 60000 VC is $ 8 per unit
and asking the price where the profit is maximize ,
Thanks,
Alawi
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profit maximization price
11y ago#1In the price demand equation, b = 30/10000 = 0.003
a = 200 + (0.003 x 100,000) = 500.
So the equation for MR = 500 - 0.006Q
MC = marginal/variable cost = 8
For maximum profit, MR = MC
So 500 - 0.006Q = 8
0.006Q = 492
Q = 492/0.006 = 82,000
Putting this in the price demand equation gives:
P = 500 - (0.003 x 82000) = $254
(Hope that helps, if not then do watch the free lecture on pricing)
Thank you so much.....
but I would like to know why we maximize profit when we have MC=MR ,
Thanks,
11y ago#3You will have to watch the free lecture to understand why profit is maximised when MR = MC
I cannot type out the whole lecture on here.
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