If Tiger Toys faces a demand curve of P = 85 - .25Q and a MC = ATC = 20, then the economic profits would be:
A) $130.00.
B) $6,825.00.
C) $2,600.00.
D) $4,225.00.

Question

Quizplus · Accepted Answer

The correct answer is D because the economic profits would be $4,225.00. This is calculated by finding the difference between the total revenue and the total cost. The total revenue is found by multiplying the price by the quantity, which is (85 - .25Q) * Q = 85Q - .25Q^2. The total cost is found by multiplying the marginal cost by the quantity, which is 20 * Q = 20Q. The economic profits are then found by subtracting the total cost from the total revenue, which is (85Q - .25Q^2) - 20Q = 65Q - .25Q^2. To find the quantity that maximizes economic profits, we take the derivative of this equation and set it equal to zero, which gives us Q = 130. Substituting this quantity back into the equation for economic profits, we get $4,225.00.

If Tiger Toys Faces a Demand Curve of P =