Question

In: Economics

There are many companies that make turbans, but ManMan Headgearis famous for their distinctive blue...

There are many companies that make turbans, but ManMan Headgear is famous for their distinctive blue turbans.

The demand for ManMan turbans is given by P = 100 – 2Q

The cost of producing turbans is given by C = 4Q

1)What Quantity will ManMan produce if they can't use any advanced pricing strategies?

2)What Price will ManMan charge if they can't use any advanced pricing strategies?

3)What will ManMan's profit be?

Expert Solution

Ans. Demand for turbans, P = 100 - 2Q

=> Total revenue, TR = P*Q = 100Q - 2Q^2

=> Marginal Revenue, MR = dTR/dQ = 100 - 4Q

And total cost, C = 4Q

=> Marginal Cost, MC = dC/dQ = 4

a) The profit maximizing level of output level is where marginal cost equals marginal revenue, so,

MR = MC

=> 100 - 4Q = 4

=> Q = 24 units

Thus, equilibrium quantity produced of turbans is 24 units

b) The corresponding equilibrium price is given by the demand curve,

P = 100 - 2*24 = $52

Thus, equilibrium price of turbans is $52

c) Profit = Total Revenue- Total Cost

=> Profit = 52*24 - 4*24 = $1152

Thus, profit earned is $1152.

Rahul Sunny answered 2 years ago

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