Suppose that each of a firm’s customers has the following demand curve: P = 20 –

Question

Suppose that each of a firm’s customers has the following demand curve: P = 20 – 2Q. Suppose also that the firm’s total cost function is TC = 8Q. a. What is the marginal cost and therefore the price charged per unit based on this strategy? b. At the price found in part a, what quantity will each customer purchase? c. Determine the firm’s revenue per customer from the per unit charge, using the answers to parts a and b. d. Determine the consumer surplus that the firm can charge each customer as an entrance fee. e. Determine the total revenue from each customer using the answers to parts c and d. f. Determine the total cost at the quantity found in part b. g. Determine the profit that the firm will make from each customer.

Explanation / Answer

Answer
a)
The firm produces at MC=P
MC=dTC/dQ=8
b)
equating
20-2Q=8
Q=6
Each customer will purchase 6 units of goods
c)
TR at the per unit charge is
=8*6=48
the revenue from a customer is $48

d)
CS=0.5*(20-8)*6
=$36
the firm charge the bunch of goods is $36

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