If Tiger Toys faces a demand curve of P = 85 - .25Q and a MC = ATC = 20, then the markup would be:
A) $52.50.
B) $20.00.
C) $32.50.
D) $65.00.

Question

Quizplus · Accepted Answer

The equation for markup is (P - MC)/P.

First, we need to calculate the price at the profit maximization point, where MR = MC.

MR = d(P)/dQ = 85 - 0.5Q
MC = 20
85 - 0.5Q = 20
Q = 130

P = 85 - 0.25Q = 51.25

Now we can calculate the markup:

(P - MC)/P = (51.25 - 20)/51.25 = 0.61 or 61%

Therefore, the markup would be $32.50.

If Tiger Toys Faces a Demand Curve of P =