You are a manager at Hancock Tires. If the marketing department estimate of the demand for its high-end tire is Q = 150-15P, what price should it charge to maximize its revenue?
A. $5
B. $15
C. $3.5
D. $6.14
Answer: A. $5
Q = 150 - 15P
15P = 150 - Q
P = (150 - Q) / 15
Total revenue (TR) = P x Q = (150Q - Q2) / 15
Revenue is maximized when dTR/dQ = 0
dTR/dQ = (150 - 2Q) / 15 = 0
150 - 2Q = 0
2Q = 150
Q = 75
P = (150 - 75) / 15 = 75 / 15 = 5
Charge to maximize revenue = $5
You might also like to view...
The crowding-out effect refers to the tendency of expansionary fiscal policy to
A) cause decreases in planned investment or planned consumption. B) cause households to save less. C) replace low-skilled labor with higher-skilled labor. D) cause firms to produce beyond capacity.
The Coase theorem applies when ______.
a. externalities are increased b. externalities are internalized c. internal costs are externalized d. internal costs are eliminated
An increase in aggregate demand, such as that due to an increase in government purchases, increases:
a. prices in the short run and output in the long. b. output in the short run and prices in the long run. c. both output and prices in the long run. d. output in the long run.
The market produces too much of a good with ______.
a. adverse selection b. negative externalities c. positive externalities d. asymmetric information