Question

Marginal Analysis You are the manager of GetMoney Inc. and you produce cardboard boxes. Suppose that you hired a consultant for your company to estimate the demand for your cardboard boxes. You collect data on the price and quantity of boxes sold and send it to your consultant, who then estimates the inverse demand equation as P = 14 – (1.5)*Q. Please also assume that you have a fixed cost of $2 and that the variable cost as estimated by your consultant is V(Q) = 4Q + ? 2 . a) What is the quantity that maximizes profits based upon the above information? What are the corresponding maximum profits that you can earn? (Please use graphs to support your answer.) b) At the quantity that maximizes net benefit, are marginal revenues positive, negative, or zero? At this quantity, would you recommend increasing production in order to increase revenues? Why or why not. (Please use graphs to support your answer). c) Are marginal benefits equal to zero at this quantity? Why or why not?

Answer 1