Question

The Mont Bed Co. has a demand function as follows:

P= 1760-12x

And the cost function is :

TC = 1/3x3 -15x + 24000

a. find the level of output to maximize profit

b. what price should be charged

c. compute the amount of total profit

d. compute the point of elasticity of demand at the profit_ maximizing level of output

e. what is the amount of fixed cost

Answer 1

Solution-

a) maximizing profit condition is

MC=MR where MC is marginal cost and MR is Marginal Revenue.

b) Putting maximizing quantity in price function, we get quantity as

(C) Total profit= Total revenue- Total cost

Thus profit is $9590.98

d) Elasticity at any point is given by dp/dx×p1/q1 where p1 and x1 are price and quantity at maximizing level.

e) Total fixed cost is the cost which is independent of the output levels. Thus we can deduce it from the cost function that the constant value 24000 is the fixed cost.