(a) Express quantity as a function of price for both retail and wholesale customers. Add these quantities together to calculate the market demand curve. Graph the retail, wholesale and total market inverse demand curves.(b) Calculate total revenue (TR), total cost (TC) and total profit (π) based on total market inverse demand.(c) Calculate the profit-maximizing price-output combination and total profit. Calculate the break- even points. |Problem 2.4: Profit MaximizationGregory House, a Philadelphia-based management consultant, has been asked to calculate andanalyze market demand for a new video game that is to be marketed to retail (R) and wholesale(W) customers over the Internet. The client estimates fixed costs of $750.000 per year for theproduct, and that licensing fees and other marginal costs will be $20 per unit. The client has alsoprovided the following annual demand informationPr = 62, 50 – 0, 0005Q,Pw = 50 – 0, 002QW

(a) Q r = 125000 – 2000Pr TR r = 62.50 Q r – 0.0005 Qr2 TC r = 750 + 20 Q r Π r = 62.50 Q r –…

Answered: |Problem 2.4: Profit Maximization…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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(a) Express quantity as a function of price for both retail and wholesale customers. Add these quantities together to calculate the market demand curve. Graph the retail, wholesale and total market inverse demand curves.

(b) Calculate total revenue (TR), total cost (TC) and total profit (π) based on total market inverse demand.

|Problem 2.4: Profit Maximization
Gregory House, a Philadelphia-based management consultant, has been asked to calculate and
analyze market demand for a new video game that is to be marketed to retail (R) and wholesale
(W) customers over the Internet. The client estimates fixed costs of $750.000 per year for the
product, and that licensing fees and other marginal costs will be $20 per unit. The client has also
provided the following annual demand information
Pr = 62, 50 – 0, 0005Q,
Pw = 50 – 0, 002QW

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