Question

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.



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  • CreatedFebruary 13, 2015
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