Assessing Profit Potential Using Marginal Analysis

Assess the profit potential using marginal analysis.

It is assumed that the toothpaste market is perfectly competitive and the current price of a case of toothpaste is $42.00. CPI has estimated its marginal cost function to base follows: MC =.006Q.

1. The Board would like to know how many cases of toothpaste should be produced in order to maximize profits.
2. What would happen if CPI decided to raise prices unilaterally in this toothpaste market?
3. What would happen to the profit maximizing level of output if the market price suddenly rose to $54 per case? Explain why the output level changes.
4. Could CPI benefit by advertising in this perfectly competitive market?
5. If CPI was somehow able to monopolize the market what would happen to the price of toothpaste, would it rise or fall? What would happen to the profits CPI makes via their toothpaste division?

Solution Preview

1. Because the toothpaste market is perfectly competitive, we know that its profit max. rule is MC = P

Since P = 42, we have MC = 0.006Q = 42 = P, solve for Q and get Q = 7000. SO 7000 cases should be produced.

2. CPI will not be able to sell anything. One of the properties about perfect competition is that they face an perfectly elastic demand curve. This means that at the present price level, ...

Solution Summary

The solution discusses the effects various price and advertising alterations of a toothpaste company in a perfectly competitive market would have on CPI, as a way of assessing profit potential. 290 words.

Profit Maximization
Profit Maximization
1) Fill in the missing data for price (P), total revenue (TR), Marginal Revenue (MR),
total cost (TC), Marginal Costs (MC), profit (ð), and marginalprofit (Mð)
in the following table (all units except Q are dollar

Use the following equations to demonstrate why a firm producing at the output level where MR = MC will also be able to maximize its total profit (i.e., be at the point where marginalprofit is equal to zero). Note: To prove this, you must first present the algebraic expression for the profit function, and then the first-order

Campbell's sells used trailers, U, and new trailers, N. Its profits are given by Õ = 100N + 68U - 5N2 - 5U2 - 2NU. Campbell's maximum profit is
a. $455.
b. $588.
c. $620.
d. $495.
e. $640.
Total profit is maximized when
a. marginalprofit equals average profit.
b. marginalprofit equals zero.
c. average profit eq

Evaluate the price (P) and the output (Q) data in the following table. COPY AND PASTE THE TABLE TO YOUR WORD DOCUMENT, THEN FILL IN THE BLANK SPACES.
Q P TR MR AR
0 $80
1 70
2 60
3 50
4 40
5 30
6 20
7 10
8 0
A. Compute the related total revenue (TR), marginal reven

Please choose the correct answer:
10. Acme estimates marginal revenue on a product to be 200q^-1/3 dollars per unit when the level of production is q units. The corresponding marginal cost is 2q dollars per unit. Suppose the profit is $250 when the level of production is 1 unit. What is Acme's profit when 8 units are produced

Problem 1
Given the following total-revenue function:
TR=9Q-Q(2)
A)Derive the total, average, and marginal revenue schedules from Q=0 to Q=6 by 1's
B)On the same set of axes, plot the total , average, and marginal-revenue schedules of part (a)
c) Then draw on the same set of axes the marginal-revenue curve derived in p

Sam's Auto's faces a strategic managerial decision. The firm can sell cars by simply posting a price. If the customer is willing to buy, clerk's fill-out paperwork and the sale is complete. Alternatively, it can hire commissioned sales reps to probe customer's willingness and ability to pay. (These reps are trained to ask cu