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    02.05 Maximizing Profit Solved

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    Yasmeen Alnajjar

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    02.05 Maximizing Profit Solved

    Uploaded by

    Yasmeen Alnajjar
    395 views2 pages

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    02.05 Maximizing Profit solved

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    395 views2 pages

    02.05 Maximizing Profit Solved

    Uploaded by

    Yasmeen Alnajjar

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    02.

    05 Maximizing Profit

    Product: iPhone 14
    Price: $999
    Market Type: Oligopoly

    What is your product and its price? What type of market does your product exist in?
    My product is the iPhone 14, which costs $999. It exists in an oligopoly market, where a few
    large companies, such as Apple, Samsung, and Google, significantly influence the market.
    These firms set market trends and prices, with high barriers to entry for new competitors due
    to the significant investments required in technology development and brand establishment.

    Why is the marginal cost curve the same basic shape, no matter the product?
    The marginal cost curve typically has a U-shape because of the law of diminishing returns.
    As a company produces more goods, the cost to make each additional item initially decreases
    as production becomes more efficient. This is because resources are being used more
    effectively, and there are cost savings from producing a larger quantity. However, after a
    certain point, the cost to produce each additional item increases. This increase occurs because
    resources are being stretched, workers might be required to work longer hours which costs
    more, and equipment might start to wear out, causing inefficiencies.
    At the profit-maximizing quantity, is the price of your product equal to, higher than, or
    lower than marginal cost? Explain.
    At the profit-maximizing quantity, the price of the product (P1) is higher than the marginal
    cost (MC). In an oligopoly market, companies have the power to set prices above marginal
    costs to earn significant profits. While the profit-maximizing rule dictates that the quantity
    produced should be where marginal revenue (MR) equals marginal cost (MC), the price is
    determined by the demand curve, which is positioned above the MR curve. As a result, the
    firm can charge a price higher than the marginal cost to maximize its profits.

    Assume Qpm is 100 units. What is your total revenue?


    Total revenue (TR) is calculated by multiplying the price by the quantity:
    TR=999×100=99,900
    This represents the total revenue from selling 100 units of the iPhone 14 at $999 each.

    Why would an already successful business owner conduct a marginal cost analysis for
    their product?
    As a successful business owner, it's essential to constantly analyze our costs and pricing
    strategies to stay competitive and profitable. By using marginal cost analysis, we can
    determine the optimal production level to maximize our profits. This analysis also provides
    valuable insights into potential cost savings and efficiency improvements. Understanding
    how marginal costs change with production levels helps us make informed decisions about
    production, setting prices, and investing in new technologies or processes.

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