If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20,then the economic profits would be
A)$130.
B)$6,825.
C)$2,600.
D)$4,225.

Question

Quizplus · Accepted Answer

The correct answer is D.The economic profit is given by the difference between total revenue and total cost. Total revenue is given by the demand curve, which is P = 85 − 0.25Q. Total cost is given by the marginal cost curve, which is MC = ATC = 20.To find the economic profit, we need to find the quantity that maximizes total revenue minus total cost. We can do this by setting the marginal revenue equal to the marginal cost. The marginal revenue is the derivative of the total revenue curve, which is MR = 85 − 0.5Q. The marginal cost is the derivative of the total cost curve, which is MC = ATC = 20.Setting MR = MC, we get:85 − 0.5Q = 200.5Q = 65Q = 130Substituting Q = 130 into the total revenue curve, we get:TR = P * Q = (85 − 0.25Q) * Q = (85 − 0.25 * 130) * 130 = $11,050Substituting Q = 130 into the total cost curve, we get:TC = MC * Q = 20 * 130 = $2,600Therefore, the economic profit is:π = TR − TC = $11,050 − $2,600 = $8,450

If Tiger Toys Faces a Demand Curve of P =