On weekends during summer months, Eric Cart man rents jet skis at the beach on an hourly basis. Last week, Cart man rented jet skis for 20 hours per day at a rate of $50 per hour. This week, rentals fell to 15 hours per day when Cart man raised the price to $55 per hour.
Using these two price-output combinations, the relevant linear demand and marginal revenue curves can be estimated as:
P = $70 - $1Q and MR = $70 - $2Q
A. Calculate the revenue-maximizing price-output combination. How much are these maximum revenues? If marginal cost is $30 per hour, calculate profits at this activity level assuming TC = MC × Q.
B. Calculate the profit-maximizing price-output combination along with revenues and profits at this activity level.

  • CreatedFebruary 13, 2015
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