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    Finding Optimum price and output levels

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    You have an exclusive contract with Major League Baseball to manufacture Dodgers baseball jerseys and sell them in two markets: Los Angeles and Brooklyn. You produce all the jerseys in a single factory located in Seattle. Your total cost function associated with producing the baseball jerseys is c(Q)=Q2+400 where q is the total amount of jerseys you produce. The inverse demand function for your jerseys in Los Angeles is PLA(QLA)=60-QLA where qLA is the quantity of jerseys sold in Los Angeles. The inverse demand function in Brooklyn is PB(QB)=40-2QB. Assume there is no transportation costs.

    How many baseball jerseys will you sell in Los Angeles and how many in Brooklyn? What will be the price of your jersey in Los Angeles and what will be the price in Brooklyn? What will be your total profits?

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    Solution Preview

    Total jerseys produced =QLA+QB
    Total Cost=TC=Q^2+400

    Inverse demand function for Jerseys sold in Los Angeles is given by

    Total Revenue for Jerseys sold in Los Angeles is

    Marginal Revenue for Jerseys sold in Los Angeles will be

    Marginal Cost for ...

    Solution Summary

    Solution describes the steps to calculate optimal level of price and output in two different market segments with the help of given cost and demand functions.