## Revenue Would Be Maximized When Marginal Costs Equal Marginal Revenue..

“Maximizing Revenue” Please respond to the following: * From the scenario, assuming Katrina’s Candies is operating in the monopolistically competitive market structure and faces the following weekly demand and short-run cost functions: VC = 20Q+0.006665 Q2 with MC=20 + 0.01333Q and FC = $5,000 P = 50-0.01Q and MR = 50-0.02Q *Where price is in $ and Q is in kilograms. All answers should be rounded to the nearest whole number. Algebraically, determine what price Katrina’s Candies should charge if the company wants to maximize revenue in the short run. Determine the quantity that would be produced at this price and the maximum revenue possible Solution: 1) Revenue would be maximized when marginal costs equal marginal revenue. MC = MR 20 + 0.01333Q = 50 – 0.02Q 0.01333Q + 0.02Q = 50 – 20 0.03333Q = 30 Q = 30 / 0.03333 Q = 900 (rounded to the nearest whole number) Now, we have to substitute Q = 900 in the price equation: P = 50 – 0.01Q P = 50 – 0.01 (900) P = 50 – 9 P = $41 Therefore, price to be charged in the short-run, P = $41 Quantity that would be produced at this price, Q = 900 kilograms 2) Maximum revenue possible (maximum profit that is possible) = Total revenue – Total costs Total revenue = P * Q = (50 – 0.01Q) * Q 50Q – 0.01Q2 When Q = 900 Total revenue = 50 (900) – 0.01 (900)2 45,000 – 8,100 $36,900 Total costs = Variable costs + Fixed costs 20Q+0.006665 Q2 + $5,000 When Q = 900 Total costs = 20 (900) + 0.006665 (900)2 + 5,000 18,000 +5398.65 + 5000 $28,398.65 Maximum Profit = Total revenue – Total costs [50Q – 0.01Q2] – [20Q+0.006665 Q2 + $5,000] 30Q –...

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