Question

2. The Johnson Robot Company’s marketing managers estimate that the demand curve for the company’s robots...

2. The Johnson Robot Company’s marketing managers estimate that the demand

curve for the company’s robots in 2012 is P = 3,000 - 40Q

where P is the price of a robot and Q is the number sold per month.

a. Derive the marginal revenue curve for the firm.

b. At what prices is the demand for the fi rm’s product price elastic?

c. If the fi rm wants to maximize its dollar sales volume, what price should

it charge?

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Homework Answers

Answer #1

a. Derive the marginal revenue curve for the firm.

MR=3000-40Q ---------- An MR curve is double sloped than an inverse linear demand curve.

b. At what prices is the demand for the firm’s product price elastic?

The demand is elastic at prices above unit elastic price and unit elastic price is at MR=0

MR=3000-80Q

3000-80Q=0

80Q=3000

Q=37.5

P=3000-40*37.5

=1500

Demand is elastic at a price above $1500 and a price of $1500 is unit elastic demand; below $1500 it is inelastic

c. If the firm wants to maximize its dollar sales volume, what price should it charge?

The dollar sales volume is maximum at unit elastic demand so it will charge a price of $1500 which is the unit elastic price.

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