Consolidated Salt Company sells table salt to both retail grocery chains and com
ID: 1195764 • Letter: C
Question
Consolidated Salt Company sells table salt to both retail grocery chains and commercial users (e.g., bakeries, snack food makers, etc.). The demand function for each of these markets is:
Retail grocery chains:
P1 = 180 - 8Q1
Commercial users:
P2 = 100 - 4Q2
where P1 and P2 are the prices charged and Q1 and Q2 are the quantities sold in the respective markets. Consolidated's total cost function (which includes a "normal" return to the owners) for salt is:
TC = 50 + 20(Q1 + Q2)
Assuming that Consolidated is effectively able to charge different prices in the two markets, what are the profit-maximizing output levels for the product in the two markets?
Q1 = 10, Q2 = 10
Q1 = 20, Q2 = 20
Q1 = 10, Q2 = 20
Q1 = 20, Q2 = 10
Assuming that Consolidated is effectively able to charge different prices in the two markets, what is Consolidated's total profit under this condition?
$1050
$1150
$1250
$1350
Assuming that Consolidated is effectively able to charge different prices in the two markets, what are the profit-maximizing price for the product in the two markets?
P1 = $60/unit, P2 = $100/unit
P1 = $100/unit, P2 = $60/unit
P1 = $60/unit, P2 = $60/unit
P1 = $100/unit, P2 = $100/unit
Retail grocery chains:
P1 = 180 - 8Q1
Commercial users:
P2 = 100 - 4Q2
Explanation / Answer
As shown by the TC function, the marginal cost of producing each unit of output is $20.
MC = 20
Calculate Marginal revenue of salt sold to Retain grocery chains.
P = 180 – 8Q
TR = PQ = (180 – 8Q)Q
TR = 180Q – 8Q2
MR = dTR/dQ
MR = 180 – 16Q
Find the profit maximizing quantity as follows.
MC = MR
20 = 180 – 16Q
Q1 = 10
which is the profit maximizing quantity of salt sold to the retail grocery stores.
The price charged to the retail grocery stores is
P = 180 – 8(10)
P1 = 100
Calculate Marginal revenue of salt sold to COMMERCIAL USERS.
P = 100 – 4Q
TR = PQ = (100 – 4Q)Q
TR = 100Q – 4Q2
MR = dTR/dQ
MR = 100 – 8Q
Find the profit maximizing quantity as follows.
MC = MR
20 = 100 – 8Q
Q2 = 10
which is the profit maximizing quantity of salt sold to commercial users.
The price charged to commerical users is
P = 100 – 4(10)
P2 = 60
Profit = P1Q1 + P2Q2 – [50 + 20(Q1 + Q2)]
= 100(10) + 60(10) – [50 + 20(10 + 10)]
= $1150
The correct answers are made bold hereunder.
Assuming that Consolidated is effectively able to charge different prices in the two markets, what are the profit-maximizing output levels for the product in the two markets?
A.
Q1 = 10, Q2 = 10
B.
Q1 = 20, Q2 = 20
C.
Q1 = 10, Q2 = 20
D.
Q1 = 20, Q2 = 10
Assuming that Consolidated is effectively able to charge different prices in the two markets, what is Consolidated's total profit under this condition?
A.
$1050
B.
$1150
C.
$1250
D.
$1350
Assuming that Consolidated is effectively able to charge different prices in the two markets, what are the profit-maximizing price for the product in the two markets?
A.
P1 = $60/unit, P2 = $100/unit
B.
P1 = $100/unit, P2 = $60/unit
C.
P1 = $60/unit, P2 = $60/unit
D.
P1 = $100/unit, P2 = $100/unit
A.
Q1 = 10, Q2 = 10
B.
Q1 = 20, Q2 = 20
C.
Q1 = 10, Q2 = 20
D.
Q1 = 20, Q2 = 10