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Cost-Plus Pricing: Calculating % Markup at Optimal Q and P

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Let a firm's demand be given by: Q=100-P. Let the firm's marginal cost be $2 per unit of production. Solve for the firm's marginal revenue equation and optimal output/price combination. If the firm sets prices using Cost-Plus pricing what is the % markup over cost at the optimal price you found above?

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Solution Summary

Given a firm's demand equation and its marginal cost, this solution shows how to calculate the firm's marginal revenue equation and optimal output/price combination. It then shows how to calculate the firm's percent markup if it uses cost-plus pricing.

Solution Preview

To find Marginal Revenue (MR), first find Total Revenue (TR):

From the demand curve:
Q = 100 - P
Rearranging:
P ...

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