Consider the same market for nonalcoholic beer as in the previous question. Cudweiser's response function is
A)QB = 2,000 - .5QC
B)QB = 1,500 - .5QC
C)QC = 2,000 - .5QB
D)QC = 1,500 - .5QB

Question

Quizplus · Accepted Answer

In order to determine the best choice, we need to find the profit-maximizing level of output. This occurs where marginal revenue (MR) equals marginal cost (MC). The MR for Cudweiser is given by the derivative of its response function, which is MR = 2000 - QC. We can find MC from the total cost function, which is given as TC = 5,000 + 200Q. Taking the derivative with respect to Q gives MC = 200. Setting MR equal to MC and solving for QC, we get QC = 1500. Substituting this into Cudweiser's response function gives QB = 2,000 - (.5)(1,500) = 1,250. Therefore, the best choice for Cudweiser is to produce 1,250 units of nonalcoholic beer. The corresponding price will be QC = 2,000 - (.5)(1,250) = $1,875.

Consider the Same Market for Nonalcoholic Beer as in the Previous