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Profit Maximization

Allied Box offers mail-order storage containers for fine china producers. The company is the low-cost provider of these boxes with fixed cost of $480,000 per year, plus variable cost of $30.00 for each box. Annual demand and marginal revenue functions for the company are:
P = $70 - $0.0005Q
MR = dTR/dQ = $70 - $0.001Q

A.- Calculate the profit-maximizing activity level.
B.- Calculate the company's optimal profit and return on sales levels.
C.- What would you do if you found that your profit margins were too low and your position as a cost leader were threatened?.

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A. Profit Maximization occurs when Marginal Cost equals Marginal Revenue
Marginal Cost = $30.00 per box
70 - .001Q = 30
=> 40 = .001Q
=> 40,000 = Q

Revenue at this level = 70*40,000 - ...

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