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Profit Maximization

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ABC, Inc. estimates the demand function for its product to be P = 28 - 0.14Q, where P is price and Q is output in thousands of units. The board of directors concludes that the firm should attempt in the near term to increase its total revenue, even if it means lower profit. (Please show work)

a. What output should the firm produce to maximize total revenue?

b. If MC = $14, what output does the firm produce to maximize profit?

c. Is ABC, Inc. operating in a perfectly competitive market?

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Solution Summary

Provides steps necessary to find the maximum profit.

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a) Revenue = price X quantity = (28 - 0.14Q)Q = 28Q - 0.14Q^2

take the derivative and set it to 0

dRev/dQ = 28 - 0.28Q = 0, solve ...

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