Purchase Solution

# Calculating profit-maximizing price and output

Not what you're looking for?

Coke
PL=\$40-\$0.0005QL
MRL= dTRL/ dQL =\$40-\$0.001QL

Pepsi
PT=\$50-\$0.0004QT
MRT=dTRT/dQT = \$50 - \$0.0008QT

Average variable costs for labor and materials are constant at \$20 per unit.

1. Calculate the profit-maximizing price, output, and total profit contribution levels.
2. Calculate point price elasticities of demand for each customer product at the activity levels identified in part A.

##### Solution Summary

The solution describes the steps to calculate profit-maximizing price, output, total profit contribution levels and associated price elasticity of demand.

##### Solution Preview

1. Calculate the profit-maximizing price, output, and total profit contribution levels.

Coke
Marginal Cost=Constant variable cost per unit=\$20
Marginal Revenue=MRL=\$40-\$0.001QL

A firm sets its output level such that Marginal Cost is equal to marginal revenue to maximize its profits.

Put Marginal Cost=Marginal Revenue
20=40-0.001Q
0.001Q=40-20=20
Q=20/.001=20000 units

Price=PL=40-0.0005*20000=\$30
Total ...

Solution provided by:
###### Education
• BEng (Hons) , Birla Institute of Technology and Science, India
• MSc (Hons) , Birla Institute of Technology and Science, India
###### Recent Feedback
• "Thank you"
• "Really great step by step solution"
• "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
• "Thanks Again! This is totally a great service!"
• "Thank you so much for your help!"

##### Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

##### Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

##### Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

##### Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

##### Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.