Question

1. NonLegal Seafoods (NS) sells its excellent clam chowder in Boston, New York, and Washington. NS has estimated that the demands in these three markets are respectively Q_B=10,000 -1000P_B, Q_NY=20,000 – 2000P_NY, and Q_W=15000 -1500P_W where quantities are pints of clam chowder per day. The marginal cost of making a pint of clam chowder in their Boston facility is $1. In addition it costs $1 per pint to ship the chowder to New York and $2 per pint to Washington.

1. What are the profit maximizing prices that NS should set in these three markets?
2. How much chowder is sold per day in each market?
3. What profits does NS make in each market?

Answer 1

Answer

a)

To find the profit maximising prices that should be set in each market, we calculate the Marginal Revenue(MR) and Marginal Cost(MC) and equate the two-

Boston

b)

To find the quantity of chowder sold in each market, we aubatitute the prices calculated above.

QB= 10,000-1000PB

QB= 10,000-4999.5

QB= 5000.5

QNY= 20,000- 2000PNY

QNY= 20,000-2000(4.9995)

QNY= 10,001

QW= 15000-1500PW

QW= 15000-1500(4.999)

QW= 7501.5

C)

To calculate the profit in each market, we use the formula

Profit = (P-AC)Q

where P= price in that market, AC= Average Cost and Q is the quantity

or we can also use the formula Profit= TR-TC.

where TR= total revenue and TC= total cost.