Calculating output, price, total revenue and total profit
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.
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.
Calculating output, price, total revenue and total profit.
P = $130 - $0.000125Q
MR - $130 - 0.00025
Fixed development cost = $600,000
Marginal costs are $63 per unit.
Calculate output, price, total revenue and total profit at the revenue maximizing activity level and then at the profit maximizing level (present each with relevant diagrams).
View Full Posting Details