The demand curve and marginal revenue curve for red rubber balls are given as follows: Q = 16 - P MR = 16 - 2Q
What level of output maximizes profit?

Question

Quizplus · Accepted Answer

To find the level of output that maximizes profit, we need to find the quantity where marginal revenue equals marginal cost. Since we are not given a marginal cost curve, we can assume that marginal cost is constant and equal to $8 (which is half of the intercept of the demand curve).

Setting MR = MC, we get:

16 - 2Q = 8 
8 = 2Q 
Q = 4

However, we also need to check if this output level is indeed the profit-maximizing level. We can do this by checking the marginal revenue at Q = 4 and Q = 6 (which is the next highest integer value):

MR(Q=4) = 16 - 2(4) = 8 
MR(Q=6) = 16 - 2(6) = 4

Since marginal revenue is greater than marginal cost at Q = 4, this is the profit-maximizing level of output. Therefore, the answer is D.

The Demand Curve and Marginal Revenue Curve for Red Rubber