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# What is the profit-maximizing price for a new product?

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A manufacturer of electronic products has just developed a handheld computer. Following is the cost schedule for producing these computers on a monthly babsis. Also included is a schedule of prices and quantities that the firm believes it will be able to sell (baseed on previous market research).

Q Price MR AVC AC MC
0 \$1,650
1 \$1,570 \$1,570 \$1,281 \$2,281 \$1,281
2 \$1,490 \$1,410 \$1,134 \$1,634 \$987
3 \$1,410 \$1,090 \$1,009 \$1,342.33 \$759
4 \$1,330 \$1,090 \$906 \$1,156 \$597
5 \$1,250 \$930 \$825 \$1,025 \$501
6 \$1,170 \$770 \$766 \$932.67 \$471
7 \$1,090 \$610 \$729 \$871.86 \$507
8 \$1,010 \$450 \$714 \$839 \$609
9 \$930 \$290 \$721 \$832.11 \$777
10 \$850 \$130 \$750 \$850 \$1,011

a. What price should the firm charge if it wants to maximize its profits in the short run?

b. What arguments can be made for charging a price higher than the profit-maximizing price? What exactly price would you recommend? Explain.

c. What arguments can be made for charging a lower than the profit-maximizing price? What price from the available prices do you recommend? Explain.

Solution Guide
1. Use the marginal rule (MR=MC) to determine the profit-maximizing price.
2. Total revenue is maximized when MR=0.

https://brainmass.com/economics/principles-of-mathematical-economics/what-is-the-profit-maximizing-price-for-a-new-product-229035

#### Solution Preview

See the attached file. The text here may not print correctly. Thanks

A manufacturer of electronic products has just developed a handheld computer.
Following is the cost schedule for producing these computers on a monthly basis. Also included is
a schedule of prices and quantities that the firm believes it will be able to sell (based on previous market research).

Q Price MR AVC AC MC Total Revenue Total Cost Profit
0 \$1,650
1 \$1,570 \$1,570 \$1,281 \$2,281 \$1,281 \$1,570 \$2,281 (\$711)
2 \$1,490 \$1,410 \$1,134 \$1,634 \$987 \$2,980 \$3,268 (\$288)
3 \$1,410 \$1,090 \$1,009 \$1,342.33 \$759 \$4,230 \$4,027 \$203
4 \$1,330 \$1,090 \$906 \$1,156 \$597 \$5,320 \$4,624 \$696
5 \$1,250 \$930 \$825 \$1,025 \$501 \$6,250 \$5,125 \$1,125
6 \$1,170 \$770 \$766 \$932.67 \$471 \$7,020 \$5,596 \$1,424
7 \$1,090 \$610 \$729 \$871.86 \$507 \$7,630 \$6,103 \$1,527
8 \$1,010 \$450 \$714 \$839 \$609 \$8,080 \$6,712 \$1,368
9 \$930 \$290 ...

#### Solution Summary

This solution looks at profit maximization price in 450 words. Total Revenue, Total Cost and Profit are calculated in an attached Excel file.

\$2.19