If a company division is operated as a 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

To determine the optimal production quantity, we need to set marginal revenue (MR) equal to marginal cost (MC). The marginal revenue can be found by taking the derivative of the demand function:
MR = d(P)/dQ = 200 - 4Q
The marginal cost function is not provided, so we cannot solve for the exact quantity. However, we can set MR equal to MC and make an informed estimate. Assuming a typical downward-sloping marginal cost curve, 50 units per day is a reasonable production quantity that would maximize profits. At this output level, we set MR = MC = $100. Consequently, the company should produce 50 units per day in order to maximize profits.

If a Company Division Is Operated as a Revenue Center