A company has two machines that make widgets. The marginal cost of producing a widget on each of the two machines is constant but different across the machines: MC1 = $2, MC2 = $5. where MC1 is the marginal cost of making a widget on machine 1, MC2 is marginal cost on machine 2, etc. Assume the company has no fixed costs. Each machine has a capacity of only 2,000 widgets. The company sells widgets to two customers. Customer 1 has offered to pay $20 per widget for up to 2,000 widgets; customer 2 has offered to pay $15 per widget for up to 2,000 widgets. If the company wants to maximize profits what is the profit?

A company has two machines that make widgets. The marginal cost of producing a widget on each of the two machines is constant but different across the machines: MC1 = $2, MC2 = $5. where MC1 is the marginal cost of making a widget on machine 1, MC2 is marginal cost on machine 2, etc. Assume the company has no fixed costs. Each machine has a capacity of only 2,000 widgets. The company sells widgets to two customers. Customer 1 has offered to pay $20 per widget for up to 2,000 widgets; customer 2 has offered to pay $15 per widget for up to 2,000 widgets. If the company wants to maximize profits what is the profit?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter18: Auctions

Section: Chapter Questions

Problem 18.6IP

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