If a company division is operated as Revenue Center and its demand curve is P = 200 - 2Q, how many units should it produce per day?
A) 0
B) 25
C) 50
D) 100

Question

Quizplus · Accepted Answer

In order to determine the optimal output level for this revenue center, we need to find the quantity where marginal revenue equals marginal cost. In this case, we do not have information about the cost of production, so we can use the rule of thumb that profit is maximized where marginal revenue equals marginal cost.

The marginal revenue can be found by taking the derivative of the demand function with respect to quantity:

MR = dP/dQ = 200 - 4Q

Setting MR equal to zero, we get:

0 = 200 - 4Q

4Q = 200

Q = 50

Therefore, the revenue center should produce 50 units per day to maximize profits.

If a Company Division Is Operated as Revenue Center and Its