Suppose you are an analyst for the Coca-Cola company. An individual\'s inverse d

Question

Suppose you are an analyst for the Coca-Cola company. An individual's inverse demand for Coca-Cola is estimated to be P = 98 - 4Q (in cents). If Coca-Cola is produced according to the following cost function TC = 1,000 + 2Q (in cents), compute the optimal price and the number of cans to sell as a single package. a. $15 per package and 16.67 cans b. $24 per pack and 12 cans c. None of these is correct d. $1,200 per package and 12 cans e. $11.52 per package and 12 cans f. $12 per package and 24 cans

Explanation / Answer

Price=98-4*Q Total Cost(TC)=1000+2*Q Revenue=P*Q=Q(98-4*(Q) ) ==>98*Q-4(Q^2) Marginal Revenue=98-8*Q {Differentiate Revenue wrt to Q} Marginal Cost=2 {Differentiate Total Cost wrt to Q} At equilibrium MC=MR ==>2=98-8*Q ==>8Q=96 ==>Q=12 at Q=12 Price will be P=50 cents i.e., option (f) $12 per package and 24 cans is correct See $0.5 per can so for 24 cans $12.

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