A firm produces a product at a fixed marginal cost of $10 and sells the product on two different markets (A and B) . The demand on market A is Q_A = 80 - 2P. The demand on market B is Q_B = 50 - P. What price should the firm charge on market B? A) 20 B) 25 C) 30 D) None of the above is correct.

Question

Quizplus · Accepted Answer

To find the optimal price for market B, set marginal revenue (MR) equal to marginal cost (MC). The inverse demand function for market B is P = 50 - Q. Total revenue (TR) is P*Q = (50 - Q)Q = 50Q - Q^2. MR is the derivative of TR with respect to Q, which is 50 - 2Q. Set MR = MC: 50 - 2Q = 10. Solving for Q gives Q = 20. Substitute Q = 20 back into the inverse demand function: P = 50 - 20 = 30.

A Firm Produces a Product at a Fixed Marginal Cost