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    Calculating optimal output and price level

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    Cleaners R Us. offers professional motel room cleaning to motel owners in Danville, Illinois. The company estimates that each additional room it cleans costs the firm $10. The owner's daughter did a study and estimated the firm's demand could be described by the following equation, where P stands for price, and Q for Quantity demanded. She also estimated the marginal revenue equation for the company could be described by the equation below the demand equation. Lastly, since each additional room costs $10 to clean, she also derived a marginal cost equation.

    Demand, P = $20-$0.01Q (or Q = 2,000 - 100P)
    Marginal Revenue, MR = $20 - $0.02Q
    Marginal Cost, MC = $10

    a. Calculate the output level (Q - number of rooms of rooms cleaned) at which profits are maximized. (Hint: remember that profits are maximized at that output where marginal revenue (MR) = marginal cost (MC))

    b. In order to sell the amount computed in part A. above, at what price would the company have to offer its service? (Hint: which curve (equation) gives the relationship between the price of a good or service and how much of it is demanded?).

    c. What is this firm's total revenue at the optimum price/output computed in parts A. and B.?

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    https://brainmass.com/economics/pricing-output-decisions/calculating-optimal-output-and-price-level-408471

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    a. Calculate the output level (Q - number of rooms of rooms cleaned) at which profits are maximized. (Hint: remember that profits are maximized at that output where marginal revenue ...

    Solution Summary

    Solution describes the steps to calculate optimal output level, price level and associated revenue.

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