# Calculating profit-maximizing price and output

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.

https://brainmass.com/economics/price-levels/calculating-profit-maximizing-price-output-287147

#### 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 Summary

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