The marginal cost of producing a particular item is $2.50. Suppose a consumer is willing to purchase one item at $10, the second unit of that item is $9, the third unit of that item at $8, and so on. This means that the consumer's demand schedule looks like

Price ($)	Quantity
10	1
9	2
8	3
7	4
6	5
5	6
4	7
3	8
2	9
1	10

1. If the firm must set a single price and sell all of its units, what price will it select to maximize profits? What will the profit be?

2. Suppose the firm can apply a "volume discount", pricing the first good at $10, pricing the second unit at $9, and pricing the third unit at $8, and so on. What is the smallest per-unit price the firm will want to offer? Assuming the volume discount ends at (or before) that price, what will the firm's profit be?

Answer rating: 100% (QA)

Solution 1 price QTY Revenue MR 10 1 10 10 9 2 18 8 8 3 24 6 ... View the full answer