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# Calculating profit-maximizing price and output

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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.

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