The Mechanics of Profit Maximization Essay Example | Topics and Well Written Essays - 750 words

The Mechanics of Profit maximation - Essay ExampleMarginal Revenue Q = 100 0.5P 0.5P = 100 Q P = (100/0.5) (Q/0.5) P = cc 0.5Q TR = P*Q = (200 - 0.5Q) Q TR = 200Q - 0.5Q2 MR = dTR/dQ = 200 Q Marginal Cost TC = 100 + 60 (Q) + (Q) 2 AC = TC/Q = 100/Q + 60 + Q MC = dTC/Dq = 60 + 2Q B) Demonstrate that turn a profit is maximized at the quantity where MR = MC. MR = MC MR = dTR/dQ = 200 Q MC = dTC/Dq = 60 + 2Q 200 Q = 60 + 2Q 140 = 3Q Q = 46.67 C) Derive the relationship between marginal revenue and the price elasticity of demand, and show that the profit-maximising price and quantity will never be the unit-elastic breaker point on the demand curve. The relationship between marginal revenue and the price elasticity of demand jackpot be summed as the percentage change in revenue equaling total percentage changes in quantity and price. R = PQ dR = PdQ + QdP dR/R = PdQ/PQ + QdP/PQ dR/R =dQ/Q + dP/p D) Using the information in (B), demonstrate that the profit-maximizing price and quantity will never be in the inelastic portion of the demand curve. ... 8) formulate the difference between firms in monopolistic competition and firms in oligopoly. What does this difference mean for prices and quantities and for economic profit? Firms in monopolistic competition give large number of modest firms, while in an oligopoly contain a small number of large firms (Amosweb, 2013). Also, monopolistic firms are price takers, while oligopolistic firms are price setters. Since oligopolies set the prices of quantities rather than take the prices, they can affect the outcome of the economic profit, where if they set the price high, they fix more profit. The monopolistic firms cannot afford to set the prices high because they cannot compete with oligopoly firms in terms of setting prices (Varun, 2013). With the small number of large firms in oligopoly, it is easier for one firms action to influence the action of an some other(prenominal) firms (Brunelle, 2006). For instanc e, if one oligopoly firm reduces its price because of increased quantities it will affect the entire market because it would imply other monopolistic firms would have to reduce their prices and may reduce their profit. 9) A firm has estimated the following demand belong for it products Q = 8 2P + 0.10I + A Where Q is quantity demanded per month in thousands, P is product price, I is an index of consumer income, and A is advertising expenditures per month thousands. Assume that P = $10, I = 100, and A = $20. Based on this information, calculate set for Quantity Demand Q = 8 2P + 0.10I + A Q = 8 2 (10) + 0.10(100) + 20 Q = 18 Price duck soup of Demand ed = dQ/dA ed = 1 Advertising Elasticity ae = dQ/dA x A/Q ae = (1) x (20/18) ae = 1.11 % meaning 1 percent