Economics

posted by Special

CCM television station is considering selling promotional videos produced by Firm A or Firm B. Firm A will charge the station a set up fee of $1,200 plus $2 for each cassette, while firm B has no set up fee and will charge $4.00 for each cassette. The demand for cassettes is Q = 1,600-200P where P=price and Q number of cassettes.
A) how many cassettes should the firm order and from which supplier?
B) what price should the firm charge to maximise profit and how much cassettes should it order from each supplier?

  1. economyst

    First, I like to rewrite the demand function as P=f(Q).
    So, P= 4 - Q/200.
    Total Revenue is P*Q = 4Q -(Q^2)/200
    MR is the first derivitive of TR. So,
    MR = 4 - Q/100

    MC for Firm A is given as $2, MC for firm B is given as $4. Calculate the optimal Q for firms and B, by setting MC=MR. Then calculate total profit for both. Then choose the firm with the highest profit.

  2. Special

    Can you elaborate some more on these answers. What do i do with the other information in the question. What do i do about the demand function. I'm unclear how you arrived at this;First, I like to rewrite the demand function as P=f(Q).
    So, P= 4 - Q/200.
    Total Revenue is P*Q = 4Q -(Q^2)/200
    MR is the first derivative of TR. So,
    MR = 4 - Q/100

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