Question

Pharmed Caplets is an antibiotic product with monthly revenues and costs of:
TR = $900Q - $0.1Q2 ............ TC = $36,000 + $200Q + $0.4Q2
MR = ∂TR/∂Q = $900 - $0.2Q ....... MC = ∂TC/∂Q = $200 + $0.8Q
A. Set up a spreadsheet for output (Q), price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), average cost (AC), total profit (π), and marginal profit (Mπ). Establish a range for Q from 0 to 1,000 in increments of 100 (i.e., 0, 100, 200, ..., 1,000).
B. Using the spreadsheet to, create a graph with MR, MC, and AC as dependent variables and units of output (Q) as the independent variable. At what price/output combination is total profit maximized? Why? At what price/output combination is average cost minimized? Why?
C. Determine these profit-maximizing and average-cost minimizing price/output combinations analytically. In other words, use revenue and cost equations to confirm your answers to part B.
D. Compare the profit-maximizing and average-cost minimizing price/output combinations, and discuss any differences. When will average-cost minimization lead to long-run profit maximization?



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  • CreatedFebruary 13, 2015
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