Suppose a firm plans to introduce a new product and believes the profit maximizing price is going to be $10 per unit. Then it learns its fixed costs of pricing the goods are going to be twice as high as it had originally thought. Some managers say that they must now raise price to $12 per unit to cover these additional fixed costs. If the original price of $10 per unit was the correct profit maximizing assuming the original level of fixed cost, should the firm raise its price? why or why not?
If the profit maximizing price is $10 and there is no change in the marginal cost of production, then the firm should not change its price. note that the profit maximizing price depends upon the elasticity of demand and the marginal cost. Changes in any of these variables will change the profit maximizing price. In the given case only fixed cost is changed but there is no change in marginal cost or elasticity. Hence profit-maximizing price will still be $10 per unit.
Suppose a firm plans to introduce a new product and believes the profit maximizing price is...
Firm A produces bags and expects to introduce a new product in a market. Firm A adopts indirect distribution channel in the order of Firm A → Wholesaler → Retailer → Buyer (or Consumer). Q1. If a buyer purchases the new product for $109.99 at retailer, what is unit price did firm A sell the new product to its wholesaler if a 10% mark up on sales on every new product is applied to each channel member? Let's assume that...
24. ته هن ف At its current output, a profit-maximizing firm finds that its price > marginal cost. If we do not know whether the firm is a monopoly or if it is perfectly competitive, then we can correctly say that this firm will increase production. this firm will decrease production. new firms will enter the market over time. this firm may be maximizing profit if it is perfectly competitive. this firm may be maximizing profit if it is a...
At its current level of production a profit-maximizing firm in a competitive market receives $10 for each unit it produces and faces an average total cost of $12.5. At the market price of $10 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1,000 units. What is the firm's current profit? What is likely to occur in this market and why?
Two profit-maximizing firms compete on prices. They must simultaneously select a price without the other firm knowing what that choice is. They can price at $9 per unit, $8 per unit or $7 per unit. Total demand for the product (Q = Q1+Q2) is given by Q = (10 – PL)*100, where PL is the lowest of the two prices posted. If they both post the same price they split the total demand evenly. If the lowest price is $1...
At its current level of production, a profit-maximizing firm in a competitive market receives $15 for each unit it produces and faces an average total cost of $10. At the market price of S15 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1.300 units. What is the fim's current profit? What is likely to occur in this market and why?
Henderson Inc. plans to introduce a new product next year. This product has a two-year life and an estimated demand of 20,000 units annually. The product will be produced 50 weeks each year. Henderson, Inc. estimates the following costs: • Direct materials will be $25 per unit. • Setup costs will be $300 per set up, five setups will be required per week. • Specialized equipment must be rented for $7,000 per week. • Design costs are estimated to be...
You the newly appointed manager of a profit maximizing monopolistically competitive firm. You decided to ensure that the firm is actually charging the profit maximizing price for its product and is producing the profit maximizing quantity. Your marketing group estimates that the demand curve faced by your firm is expressed as: P = 900 – 2Q and its total costs is expressed as: C(Q) = 2Q + Q2 a. What price would you charge? And what level of output would...
For each of the following scenarios, analyze the short run impact on both the profit-maximizing price charged andthe profit-maximizing quantity produced and sold by the firm. Briefly explain each answer. Draw a separate, fully-labeled diagram for each scenario. Each diagram mustinclude the firm’s initial MC, AC, and MR lines, as well as any new lines that change as a result of what is given in the question. Be sure to indicate the initial and final profit maximizing price and output...
The equilibrium price at which a perfectly competitive firm sells its good is $8. The profit-maximizing quantity of output is 200 units. At this quantity of output, the firm has an average fixed cost of $4 and an average variable cost of $s. In the short this perfectly competitive firm should
If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will: options: 1) continue to produce at a loss. 2) produce at a profit. 3) shut down production. 4) reduce its fixed costs.