Economic Theory:
To Maximize profits: MC=MR
Where MC = Marginal Cost and MR= Marginal Revenue
MC = Change in Total Cost/Change in Quantity
MR= Change in Total Revenue/Change in Quantity
From Total Cost functions we can get Marginal Cost
From Total Revenue Functions we can get Marginal Revenue
In perfect Competition MR = Price
PROBLEMS
1. Find the maximum profit and the number of units that must be produced and sold in order to achieve that profit. Assume that Revenue R(x) and Costs C(x) are in dollars and x is the number of units:
A. R(x) = 9X – 2X^2
B. C(x) = X^3 – 3X^2 + 4X + 1
2. Easy Effort (EE) is producing bicycles. It determines that in order to sell X bicycles the price per bicycle must be:
P = 280 – 0.4X
It also determines that the Total Cost of producing X bicycles is given by:
C(x) = 500 + 0.6X^2
a) Find the Total Revenue R(x) (total revenue equal Price times X)
b) Find the Total Profit P(X)
c) How many bicycles must be produced and sold in order to maximize profit?
d) What is the maximum profit?
e) What price per bicycle will maximize profit?