a firm that operates under perfect competition is confronted with a demand function, in the relevant segment of which the price elasticity of demand is -1.5. the marginal cost is equal to $40. what is the profit-maximizing quantity for this firm?

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15-11-2022
Business

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a firm that operates under perfect competition is confronted with a demand function, in the relevant segment of which the price elasticity of demand is -1.5. the marginal cost is equal to $40. what is the profit-maximizing quantity for this firm?

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RupaBera RupaBera · Answer 1 · 2022-11-20T06:20:32+01:00

Price elasticity of demand in market A is 6 while it is 1.5 in market B. How should the company operate if the marginal cost of creating a book is $10.

How do you react when prices are elastic?

If demand is elastic, profits can be made by lowering prices, but if demand is inelastic, profits can be made by rising prices. You can use marketing and other promotional strategies to lessen the elasticity of PED when it is excessively elastic.

How can you determine the cost function's profit-maximizing quantity?

We are aware that marginal revenue and marginal expense must match in order to optimize profit. This means that in addition to the Revenue function and its derivative, R'(x), we also need to determine C'(x) (marginal cost) (marginal revenue). We must make marginal revenue equal to marginal cost and then solve for x in order to maximize profit.

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