Total revenue maximizing price and the profit maximization.

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Chapter 10, Problem 7CQ

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Total revenue maximizing price and the profit maximization.

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Suppose a firm sells two goods, Good A and Good B. Use the following information to Calculate the mark-up and the profit-maximizing price that the firm should change for Good B. Profit maximizing price of Good A = $6000 MC at profit-maximizing level of output of Good A = $1200 MC at profit-maximizing level of output of Good B = $400 Total revenue of Good A = $80000 Total revenue of Good B = $68000 Rothschild index of Good B = 0.6 Price elasticity of the market demand for Good B = -1.2

Small businesses typically do not observe the demand curves for the products they sell. For example, a local bakery could not draw the demand curve for its loaves of sourdough bread. Without this important information, how would the local bakery maximize its revenue?

Jabari's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Jabari initially produced four trucks, but then decided to increase production to five trucks. The following graph gives the demand curve faced by Jabari's HookNLadder. As the graph shows, in order to sell the additional fire truck, Jabari must lower the price from $105,000 to $90,000 per truck. Notice that Jabari gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial four engines because they are all sold at the lower price. Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial four engines by selling at $90,000 rather than $105,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $90,000. PRICE (Thousands of dollars per fire engine) Jabari 165 150 135 120 105 90 75 60 45 30 15 D 0 True 1…