Gnomus Knurling Company specializes in the application of ornamental knurling to

Question

Gnomus Knurling Company specializes in the application of ornamental knurling to garden tools. The tools are produced by other firms and then delivered to Gnomus for processing. Gnomus has equipment that allows it to knurl in any of five different styles (designated as styles A, B, C, D, and E). The demand curves for the five styles of knurling have been estimated and are listed below, where Q: represents the number of garden tools knurled with style i per week in hundreds and P, represents the price per knurl job associated with style QA = 6-0.6 PA Qb = 8-pb Qc = 10 - 2 Pc Qd = 12-3 PD QE =12-4 PE A shortage of qualified knurlers has prompted Gnomus to increase its hourly wage rate. As a result, its marginal cost has risen to $4 per knurl job. Determine the number of knurl jobs of each style Gnomus should perform and the price it should charge for each style. Use the graph below to show the optimal levels of production and price.

Explanation / Answer

The marginal revenues are

MRa= 6-1.2Pa (multiply the coefficient of P by 2)

Set equal to marginal cost and solve

6-1.2Pa=4

1.2Pa=2

Pa= 2/1.2= 1.67

Plug back into demand equation and solve for Q

Qa= 6- 0.6*1.67= 5

I assume you can do the rest.

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.