Question

A U.S. textbook publisher is introducing a new economics textbook, Managerial Economics- is no Graphing matter, to the domestic market. Each book is produced at a constant marginal cost of $80 per book. Management predicts that annual domestic demand for the book is Pd=278-0.3Qd, where Pd= price of a book in dollars, and Qd denotes the number of books (as measured in thousands). Assuming a fixed cost of $15,000 and the variable cost of $80 per book.

A. Compute the total profit in the domestic market.

Answer 1

In order to maximize profit a firm produces that quantity at which MR = MC

where MC = Marginal cost = 80

MR = Marginal revenue = d(TR)/dQ where TR = Total revenue = P*Q = (278 - 0.3Q)Q (Here we have considered Qd = Q and Pd = P )

Hence MR = 278 - 2*0.3Q = 278 - 0.6Q

Hence MR = MC => 278 - 0.6Q = 80 => Q = 330

Hence, In order to maximize profit he will produce 330 units.

Profit = TR - TC

where TC = Total Cost = Total Fixed cost + Total variable cost,

Total Fixed cost = 15000 and Total variable cost = Per unit Variable Cost*Q = 80Q

=> TC = 15,000 + 80Q

Hence Profit = TR - TC = (278 - 0.3Q)Q - (15,000 + 80Q) and as calculated above in order to maximize profit Q = 330

Hence, Profit = (278 - 0.3Q)Q - (15,000 + 80Q) = (278 - 0.3*330)*330 - (15,000 + 80*330) = 17670.

Hence, Total Profit in the domestic market = $17670