Figure: Demand and Marginal Revenue (Figure: Demand and Marginal Revenue) The figure Demand and Marginal Revenue refers to a software upgrade.The producer incurred fixed costs of $10 million to produce the upgrade; the marginal cost of allowing consumers to download the upgrade is zero.In order to maximize profit, the producer will set a price of ________ and produce upgrades.

Question

Figure: Demand and Marginal Revenue   (Figure: Demand and Marginal Revenue) The figure Demand and Marginal Revenue refers to a software upgrade.The producer incurred fixed costs of $10 million to produce the upgrade; the marginal cost of allowing consumers to download the upgrade is zero.In order to maximize profit, the producer will set a price of ________ and produce upgrades.

Quizplus · Accepted Answer

The profit-maximizing price and quantity occur where marginal revenue equals marginal cost. From the graph, we can see that the profit-maximizing quantity is where marginal cost intersects with demand, which is at a quantity of 125,000. Then, we can determine the corresponding price by looking at the demand curve at the quantity of 125,000, which is around $50. Therefore, the producer should set a price of $50 and produce 125,000 upgrades to maximize profit. Choices A, B, and D are incorrect because they do not correspond to the point of intersection between marginal cost and demand.