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.
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
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.
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$15,000
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$12,500
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$10,378
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$10,245
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$10,000
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