Calculating optimal output and profit
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Dot.com Products, Inc., offers storage containers for fine china on the Internet. The company is the low-cost retailer of these quilted boxes with fixed costs of $480,000 per year, plus variable costs of $30 for each box. Annual demand and marginal revenue relations for the company are:
P=$70-$0.0005Q
MR=dTR/dQ = $70- $0.001Q
A. Calculate the profit-maximizing activity level.
B. Calculate the company's optimal profit and return-on-sales levels.
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Solution depicts the steps to find out optimal activity level and profit at that level.
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A. Calculate the profit-maximizing activity level.
Given MR=70-0.001Q
Variable cost per box=$30
Fixed costs=$480000
Variable cost per box=$30
If Q is output level, then
Total Variable ...
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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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