Marginal cost is a constant $10 per tire.quantities are measured in thousands per month ans price refers to the wholesale price. marginal cost is a constant $10 per tire. american currently sells brand name tires at a wholesale price of $28.50 and private label tires for a price pf $17 are these prices optimal for the firm?
To determine if the current wholesale prices are optimal for the firm, we need to compare them to the marginal costs.
For brand name tires:
Price = $28.50
Marginal Cost = $10 per tire
To find the optimal price, we need to check if the price equals or exceeds the marginal cost.
$28.50 > $10
Since $28.50 is greater than $10, the wholesale price for brand name tires is optimal for the firm.
Now let's analyze the private label tires:
Price = $17
Marginal Cost = $10 per tire
Again, we need to check if the price equals or exceeds the marginal cost.
$17 > $10
Since $17 is also greater than $10, the wholesale price for private label tires is also optimal for the firm.
Therefore, both the brand name tires and private label tires are priced optimally for the firm based on the given marginal cost of $10 per tire.
To determine whether the prices are optimal for the firm, we need to compare them with the marginal cost of producing and selling the tires.
The marginal cost represents the additional cost incurred for producing one more unit of a product. In this case, the marginal cost is a constant $10 per tire. This means that for each additional tire produced and sold, the firm incurs an additional cost of $10.
Now let's analyze the prices set by the firm:
1. Brand name tires: The wholesale price is $28.50 per tire. To determine if this price is optimal, we need to compare it with the marginal cost of $10 per tire. Since the wholesale price of $28.50 is higher than the marginal cost of $10, the firm is making a profit of $18.50 ($28.50 - $10) per tire sold.
2. Private label tires: The price for private label tires is $17 per tire. Again, we need to compare this price with the marginal cost of $10 per tire. Here, the firm is making a profit of $7 ($17 - $10) per tire sold.
Based on the analysis, it appears that both prices set by the firm are optimal. The firm is making a profit per tire sold, with a higher profit margin for brand name tires compared to private label tires.
However, it's important to note that other factors should be considered to determine overall profitability, such as production costs, demand elasticity, market competition, and the firm's pricing strategy. This analysis only focuses on the comparison between prices and marginal costs.