Refer to Scenario 12.3. What is the profit maximizing level of output?

A) 171.43
B) 120
C) 150
D) all of the above
E) none of the above

Question

Refer to Scenario 12.3. What is the profit maximizing level of output?A)  171.43B)  120C)  150D)  all of the aboveE)  none of the above

Arnold Arciaga · Accepted Answer

Final Answer : C, Explanation :  To find the profit maximizing level of output, we need to set marginal cost equal to marginal revenue.Since the demand curve has a kink at Q=150, we need to consider two cases:Case 1: Q  < 150MR = dTR/dQ = 1200 - 10QSetting MR = MC:1200 - 10Q = QSolving for Q:Q = 120Case 2: Q >= 150MR = dTR/dQ = 360 - 2QSetting MR = MC:360 - 2Q = QSolving for Q:Q = 171.43Since the marginal cost curve (MC = Q) intersects the kinked demand curve at Q=150, we need to compare the profits at Q=120 and Q=150. We can ignore the profit at Q=171.43 since it is outside the range of the kinked demand curve.Profit at Q=120:TR = P*Q = (1200 - 5*120)*120 = $66,000TC = MC*Q = 120*120 = $14,400Profit = TR - TC = $51,600Profit at Q=150:TR = P*Q = (360 - 150)*150 = $31,500TC = MC*Q = 150*150 = $22,500Profit = TR - TC = $9,000Therefore, the profit maximizing level of output is Q=150.

Refer to Scenario 12.3. What is the profit maximizing level of output?

A) 171.43
B) 120
C) 150
D) all of the above
E) none of the above

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