Week 6
Discussion 1
“Market Structures” Please respond to the following:
* From the scenario, assuming Katrina’s Candies is operating in the monopolistically competitive market structure and faces the following weekly demand and short-run cost functions:
VC = 20Q+0.006665 Q2 with MC=20 + 0.01333Q and FC = $5,000
P = 50-0.01Q and MR = 50-0.02Q
*Where price is in $ and Q is in kilograms. All answers should be rounded to the nearest whole number.
Algebraically, determine what price Katrina’s Candies should charge in order for the company to maximize profit in the short run. Determine the quantity that would be produced at this price and the maximum profit possible.
Solution
Firm will get maximum profit in monopolistic competitive market structure when
Marginal Revenue(MR)=Marginal Cost(MC)
We know that
TC = VC + FC
So by adding valuse
TC =20Q + 0.006665Q2 + 5,000
MC = 20 + .01333Q
MR = 50 – 0.02Q
MR = MC (Profit max. condition)
– 0.02Q = 20 + 0.01333Q
50-20 = .01333+ .02Q
30 =0.03333Q
900 kgs = Q
As provided
P = 50 – 0.01Q
P = 50 – 0.01*900
P = 50 – 9
P = $41
Profit = TR – TC
900*41 – 20*900+5000+0.006665*(810000)
36900 – (23000+5398.65)
$8,501.35
Quantity will 900Kgs and Profit will be $8501.
Discussion 2
“Maximizing Revenue” Please respond to the following:
* From the scenario, assuming Katrina’s Candies is operating in the monopolistically competitive market structure and faces the following weekly demand and short-run cost functions:
VC = 20Q+0.006665 Q2 with MC=20 + 0.01333Q and FC = $5,000
P = 50-0.01Q and MR = 50-0.02Q
*Where price is in $ and Q is in kilograms. All answers should be rounded to the nearest whole number.
Algebraically, determine what price Katrina’s Candies should charge if the company wants to maximize revenue in the short run. Determine the quantity that would be produced at this price and the maximum revenue possible
Answer
R=p x q
R=(50-0.01Q) x Q
R= 50q-0.01q^2
R=50-2(0.01q)
2(0.01)q=50
0.01q=25
Q=25/0.01
Q=2500
The quantity, 2500kg, can be inserted to solve for p.
P=50-0.01(2500)
P=50-25
P=25
Quantity will be produced 2500kg and maximum Revenue will be $62,500