you are the CEO of a pharmacetial that owns the rights to no more boldness. You
ID: 1206422 • Letter: Y
Question
you are the CEO of a pharmacetial that owns the rights to no more boldness. You ask your chief economist to analyze the pricing and investment decisions facing the product. The econoist estimates that no more baldness has the follwing demand curve; p= 101 -0.0002Q
a) the marginal cost for a no more baldness tablets is $1. Average cost is equal to marginal cost. what is the profit- maximizing price and quality? what is profit?
b) Suppose that your capacity is 1,000,000 tablets per year. what is your optimal price and quantity given the production constraint for one year? what are your profits?
Explanation / Answer
answer a) p= 101 -0.0002Q
total revenue= P*Q
=101Q-0.0002Q2
Marginal revenue= d(p.q)/dq
=101-0.0004Q
MC=AC=1
profits are maximised when MR=MC
101-0.0004Q=1
100=0.0004Q
Q=250000 units
P=101 -0.0002Q
P=101-50
P=51$
Profit=250000*51 -1(250000)
=12750000-250000
=12500000 $
b)if Q=100000
P= 101-.0002*100000
P=101-20
=81 $
Profits=81*100000-100000
=80,00,000$
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