A firm faces the following demand and total cost functions: Q = 28 - 0.5P TC = 56.25 + 2Q +...

Question:

A firm faces the following demand and total cost functions:

{eq}Q = 28 - 0.5P {/eq}

{eq}TC = 56.25 + 2Q + 0.25Q^{2} {/eq}

a) Calculate Q that minimizes average cost.

b) Calculate the revenue-maximizing price.

c) Calculate the profit-maximizing price and quantity.

Profit Maximization:

The primary objective of the firm is to maximize profits subject to a resource constraint. The firm undertakes profit maximization by increasing revenues from sales and minimizing the total costs of production. The profit maximizing level of output occurs where marginal revenue is equal to marginal cost. In the short-run, some firms may undertake alternative objectives such as revenue-maximization and shareholder wealth maximization.

Answer and Explanation: 1

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a) Calculate Q that minimizes average cost.

The average cost of production is calculated as the total cost of production divided by the number of...

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Profit Maximization: Definition, Equation & Theory

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Chapter 24 / Lesson 6
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Profit maximization is the optimal level of output at which the highest profit is achieved by a business. Explore the definition, equation, and theory of profit maximization and learn how and why companies calculate profit maximization.


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