The CEO proudly announced at the all-hands meeting that, after a strong quarter, the start-up is...
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The CEO proudly announced at the all-hands meeting that, after a strong quarter, the start-up is now serving 3% of its potential market. You have been analyzing the firm's revenue and cost functions, which are R = 40Q-5Q2 and C = 7.5Q +0.25Q² (where R is revenue, C is cost, and Q is percentage of the potential market served). Looking to the future with visible excitement, the CEO goes around the room, asking each employee for one suggestion that could further increase the firm's profitability. When it's your turn, you say: Hate to spoil the party, but we are not nearly recovering our costs with the revenue from each client we currently serve. Frankly, the best we can do is shut down. Actually, we seem to be growing too fast. Reducing the number of clients we serve would increase our profit, since marginal revenue is currently less than marginal cost. To be honest, we are in a great spot and should just continue like this. Revenue from another client would be equal to the cost of serving a new client. Keep adding clients! At the moment, revenue increases faster than cost. The CEO proudly announced at the all-hands meeting that, after a strong quarter, the start-up is now serving 3% of its potential market. You have been analyzing the firm's revenue and cost functions, which are R = 40Q-5Q2 and C = 7.5Q +0.25Q² (where R is revenue, C is cost, and Q is percentage of the potential market served). Looking to the future with visible excitement, the CEO goes around the room, asking each employee for one suggestion that could further increase the firm's profitability. When it's your turn, you say: Hate to spoil the party, but we are not nearly recovering our costs with the revenue from each client we currently serve. Frankly, the best we can do is shut down. Actually, we seem to be growing too fast. Reducing the number of clients we serve would increase our profit, since marginal revenue is currently less than marginal cost. To be honest, we are in a great spot and should just continue like this. Revenue from another client would be equal to the cost of serving a new client. Keep adding clients! At the moment, revenue increases faster than cost.
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bActually we seem to be growing too fast Reducing the number of clients ... View the full answer
Related Book For
Macroeconomics Principles, Applications, and Tools
ISBN: 978-0132555234
7th Edition
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez
Posted Date:
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