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    Calculating output, price, total revenue and total profit

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    Restaurant Marketing Services, Inc., offers affinity card marketing and monitoring systems to fine dining establishments nationwide. Fixed costs are $600,000 per year. Sponsoring restaurants are paid $60 for each card sold, and card printing and distribution costs are $3 per card. This means that RMS's marginal costs are $63 per card. Based on recent sales experience, the estimated demand curve and marginal revenue relations for are:

    P=$130-$0.000125Q

    MR=dTR/dQ =$130-$0.00025Q

    A.Calculate output, price, total revenue and total profit at the revenue-maximizing activity level.
    B.Calculate output, price, total revenue and total profit at the profit-maximizing activity level.
    C.Compare and discuss your answers to parts A and B.

    © BrainMass Inc. brainmass.com December 16, 2022, 5:22 am ad1c9bdddf
    https://brainmass.com/economics/price-levels/calculating-output-price-total-revenue-and-total-profit-358371

    Solution Preview

    A. Calculate output, price, total revenue and total profit at the revenue-maximizing activity level.

    Revenue will be maximized when MR=0
    130-0.00025Q=0
    Q=130/0.00025=520000

    P=130-0.000125Q=130-0.000125*520000=$65

    Fixed Cost=$600,000
    Variable Cost per unit=$63
    Total Variable Cost=63Q
    Total Cost=Fixed Cost+ Total Variable Cost=600000+63Q

    Let us calculate ...

    Solution Summary

    Solution describes the steps to calculate output, price, total revenue and total profit at both revenue maximizing and profit maximizing levels.

    $2.49

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