A firm sells a product. The daily demand for the product is estimated by: P=150-

ID: 1187130 • Letter: A

Question

A firm sells a product. The daily demand for the product is estimated by:

P=150-5Q

Marginal Cost is constant at $2 per unit, fixed cost is 0, and ATC is also constant at $2.

a) write down expression for marginal revenue.

b)choose the quantity and the price to maximize profit, assuming firm can only charge one price.

c)Compute profit from part (b)

d) find the profit the firm could earn if they were able to perfectly price discriminate.

e) An experienced salesman offers their service for $800. Based on c) and d) does the firm hire the salesman? Why?

a). revenue= pq

= 150Q-5Q^2

thus marginal revenue

= dR/dQ

= 150-10Q

b).profit= 150Q-5Q^2- 2Q

to maximise it we have

dr/dQ==

150-10Q-2=0

Q= 14.8

Q= 15

thus price=150-75

= 75

c).profit= 150Q-5Q^2- 2Q

putting Q= 15 we get

= 1095

e). yes he can hire him because after paying him 800 company is still making + profit

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