Refer to Scenario 12.3. What is the profit maximizing price?
A) 205.72
B) 240
C) 210
D) all of the above
E) none of the above

Question

Quizplus · Accepted Answer

The profit maximizing price can be determined by finding the point at which Marginal Revenue (MR) equals Marginal Cost (MC). In this scenario, we know that MC=$80 and the demand function is P = 500 - Q. Therefore, MR can be found by taking the derivative of the demand function, which is MR = 500 - 2Q. Setting MR equal to MC and solving for Q, we get Q = 210. Plugging this value back into the demand function, we get P = 500 - 210 = 290. However, we also know that there is a fixed cost of $80,000, which needs to be accounted for. Total revenue at the profit-maximizing output level of 210 units is 210*290=$60,900. Subtracting the total cost of $80,000 from the total revenue gives us a profit of $-19,100. Therefore, the company should not produce any units as it would result in a loss. The optimal price, in this case, is not applicable.