American Export-Import Shipping Company operates a general cargo carrier service

Question

American Export-Import Shipping Company operates a general cargo carrier service between New York and several Western European ports. It hauls two major categories of freight: manufactured items and semimanufactured raw materials. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /?>

The demand functions for these two classes of goods are: P1=100-2Q1 P2=80-Q2

Where Q1=tons of freight moved. The total cost function for American is: TC=20+4(Q1+Q2)

b. What are the profit maximizing levels of price and output for the two freight categories?

Explanation / Answer

MC=MR for first good 100-4Q1=4 Q1=24 for Q2 80-2Q2=4 Q2=38

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