Scenario 10.3:
The demand curve and marginal revenue curve for red herrings are given as follows:
Q = 250 - 5P
MR = 50 - 0.4Q
-Refer to Scenario 10.3. What level of output maximizes revenue?

Question

Quizplus · Accepted Answer

To maximize revenue, we need to produce at the level where MR = 0.4Q = MC. 
Setting MR = MC, we get: 
50 - 0.4Q = MC 
MC = 5P - 250

Setting MC = 0.4Q, we get: 
5P - 250 = 0.4Q 
5P = 0.4Q + 250 
P = 0.08Q + 50

Substituting P into the demand curve, we get:
Q = 250 - 5(0.08Q + 50) 
Q = 125

Therefore, the level of output that maximizes revenue is 125 units (Choice D).

Scenario 10.3: The Demand Curve and Marginal Revenue Curve for Red Herrings