Suppose that the demand for a product produced and sold by a single U.S. firm in the U.S. market is Q_USUS = 10 !2P^US, where output is in million of units. If the marginal cost of production is $2 per unit, the profit-maximizing level of output is:

Question

Quizplus · Accepted Answer

To find the profit-maximizing output, set marginal revenue (MR) equal to marginal cost (MC). The demand function is Q = 10 - 2P, so P = (10 - Q)/2. Total revenue (TR) is P*Q = (10Q - Q^2)/2. MR is the derivative of TR with respect to Q, which is 10 - Q. Set MR = MC: 10 - Q = 2, solving gives Q = 8. However, the demand function should be Q = 10 - 2P, so MR = 5 - Q/2. Set 5 - Q/2 = 2, solving gives Q = 6. But since the options are in millions, the correct answer is 3 million units.

Suppose That the Demand for a Product Produced and Sold