(d) If the firm wishes to maximize profits, what price should it charge and how many unitsshould it produce?
Question
(d) If the firm wishes to maximize profits, what price should it charge and how many units should it produce?
Solution
Without any specific details about the firm, its costs, or its demand curve, it's impossible to provide a specific answer. However, I can explain the general process a firm would use to determine the price to charge and the quantity to produce to maximize profits.
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Determine the Marginal Cost (MC): This is the cost of producing one additional unit of a good. It can be found by taking the derivative of the total cost function with respect to quantity.
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Determine the Marginal Revenue (MR): This is the additional revenue from selling one more unit of a good. It can be found by taking the derivative of the total revenue function with respect to quantity.
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Set Marginal Cost equal to Marginal Revenue: To maximize profits, a firm should produce up to the point where MC = MR. This is because at any quantity where MC < MR, the firm can increase profits by producing more, and at any quantity where MC > MR, the firm can increase profits by producing less.
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Solve for Quantity: Once you have the equation MC = MR, solve for the quantity (Q) that satisfies this equation. This is the quantity the firm should produce to maximize profits.
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Determine the Price: Once you know the profit-maximizing quantity, substitute this quantity into the firm's demand function to find the price the firm should charge to sell this quantity.
Remember, this is a simplification and assumes that the firm is a price taker (i.e., it has no control over the market price). In reality, things can be much more complex, especially in markets where firms have some control over the price.
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