Homework Answers
Answer to blank 1: $32,400
Answer to blank 2: $16,200
Answer to blank 3: $48,600
Explanation:
P = 400 -1Q
TR = P * Q = 400Q - 1Q2
MR = 400 - 2Q
MC = 40
The profit maximization condition is:
MR = MC
400 - 2Q = 40
2Q = 400 - 40 = 360
Q = 360 / 2 = 180 [Profit maximizing quantity]
P = 400 - 1Q = 400 - 1(180) = $220 [Profit maximizing price]
TR = P * Q = $220 * 180 = $39,600
TC = $40 * 180 = 7,200
Profit = TR - TC = 39,600 - 7,200 = $32,400
Consumer surplus = 0.5[(400 - 220) * 180] = $16,200
When the firm practice price discrimination,
Profit = 32,400 + 16,200 = $48,600
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