Refer to Scenario 12.3. Suppose that the marginal cost falls such that: MC = Q - 10
What is the profit maximizing level of output?
A) 171.43
B) 120
C) 150
D) all of the above
E) none of the above

Question

Quizplus · Accepted Answer

In order to find the profit maximizing level of output, we need to set marginal cost equal to marginal revenue. From Scenario 12.3, we know that the demand function is:
P = 200 - 0.4Q
And, we know that total cost is:
TC = 10Q + 500
To find marginal revenue, we need to differentiate the demand function with respect to Q:
MR = d/dQ (200 - 0.4Q) = -0.4
Setting MR equal to MC, we get:
-0.4 = Q - 10
Solving for Q, we get:
Q = 150
Therefore, the profit maximizing level of output is 150 units.