One question that arose during the meeting was about how the firm\'s profitabili
ID: 1235115 • Letter: O
Question
One question that arose during the meeting was about how the firm's profitability in their toothpaste division would be impacted by the expansion. The Board asked you to assess the profit potential using marginal analysis.It is assumed that the toothpaste market is perfectly competitive and the current price of a case of toothpaste is $42.00. CPI has estimated its marginal cost function to be as follows: MC=.006Q.
The Board would like to know how many cases of toothpaste should be produced in order to maximize profits.
What would happen if CPI decided to raise prices unilaterally in this toothpaste market?
What would happen to the profit maximizing level of output if the market price suddenly rose to $54 per case? Explain why the output level changes.
Could CPI benefit by advertising in this perfectly competitive market?
If CPI was somehow able to monopolize the market what would happen to the price of toothpaste, would it rise or fall? What would happen to the profits CPI makes via their toothpaste division?
Explanation / Answer
for maximum profit MC =price hence 0.006Q =42 hence Q =7000 for maximizing profit if CPI decides to increase the price then Q sold will decrease and hence profit decreases if price goes to 54 then 0.006Q =54 hence profit maximizing Q =9000 as the price increases their is tendency that firm will increase te production in order to maximise the profit as it monopolize the market the price will rise profit will also increase due to monopoly
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