Drill Quest, Inc. manufactures drill bits for the oil industry. Drill Quest uses cost-plus pricing to set the price of its bits. Currently Drill Quest applies a 50 percent markup on average total cost. Average variable cost of producing bits is constant and equal to $6,000 per bit. Total fixed cost at Drill Quest is $550,000. DrillQuest currently produces 690 bits. Statistical estimation of demand for Drill Quest brand bits produces the following linear demand equation (where Q is the number of bits demanded and P is the price of bits):   Q = 1,200 − 0.05P   Use the MR = SMC approach to finding the profit-maximizing point on the demand for Drill Quest’s bits. The profit-maximizing price to charge is $___________ per bit.

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
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Chapter1: Making Economics Decisions
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Drill Quest, Inc. manufactures drill bits for the oil industry. Drill Quest uses cost-plus pricing to set the price of its bits. Currently Drill Quest applies a 50 percent markup on average total cost. Average variable cost of producing bits is constant and equal to $6,000 per bit. Total fixed cost at Drill Quest is $550,000. DrillQuest currently produces 690 bits. Statistical estimation of demand for Drill Quest brand bits produces the following linear demand equation (where Q is the number of bits demanded and P is the price of bits):

 

Q = 1,200 − 0.05P

 

Use the MR = SMC approach to finding the profit-maximizing point on the demand for Drill Quest’s bits. The profit-maximizing price to charge is $___________ per bit.

 

 

Multiple Choice
  •  
    $15,000
  •  
    $12,500
  •  
    $10,378
  •  
    $10,245
  •  
    $10,000
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