Question

Porsche sells what is considered by most to be the best sports car of all time, the Porsche 911 Carrera. The inverse demand curve for the 911 is described by P = 240 − 15QD. Porsche sells the 911 Carrera for $90. Should Porsche raise, lower, or keep the price the same? How do you know?

Answer 1

Ans) TR = P × Q = (240 - 15Q) × Q

TR = 240Q - 15Q^2

Marginal revenue is first derivative of total revenue function.

Therefore, MR = 240 - 30Q

Now, total revenue is maximum when MR is zero. So, we will find the quantity at which MR is zero by putting MR = 0 in marginal revenue function.

0 = 240 - 30Q

30Q = 240

Q = 8

Lastly, we plug the value of Q in inverse demand function to get the price.

P = 240 - 15Q

P = 240 - 15(8) = 240 - 120

P = $120

Therefore, firms should increase the price because total revenue is not maximum at $90.