Suppose the American Girl doll company has an inverse demand curve of P = 150 - 0.25Q, where Q measures the quantity of dolls per day and P is the price per doll. The marginal cost is given by MC = 10 + 0.50Q. What is the total surplus at the profit-maximizing output level?

Question

Quizplus · Accepted Answer

To find the profit-maximizing output, set MR = MC. The MR is derived from the inverse demand curve: MR = 150 - 0.5Q. Setting MR = MC gives 150 - 0.5Q = 10 + 0.5Q, solving for Q gives Q = 140. Substitute Q into the demand curve to find P = 115. Total surplus is the area between the demand curve and the MC curve up to Q = 140, which calculates to $12,250.

Suppose the American Girl Doll Company Has an Inverse Demand