Solutions_to_In_Class_Problem_no._1 - MGMT 407.04 Summer...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: MGMT 407.04 Summer 2009 In Class Problem no. 1 Solution July 14, 2009 Problem 2.7 Profit Maximization: Equations. 21 st Century Insurance offers mail- order automobile insurance to preferred-risk drivers in the Los Angeles area. The company is the low cost provider of insurance in this market but doesnt believe its annual premium of $1,500 can be raised for competitive reasons. Rates are expected to remain stable during coming periods; hence, P+MR+$1,500. Total and marginal cost relations for the company are as follows: TC=$41,000 + $500Q + $0.005Q 2 MC=$500 + $0.01Q A. Calculate the profit maximizing quantity. B. Calculate the companys profit at the profit maximizing quantity, and profit as a percent of sales revenue (profit margin) at that level of output. Profits are maximized when marginal revenue is equal to marginal cost. Since this market is competitive, the firm is a price taker and marginal revenue equals price. See the PROFIT RELATIONS section of our textbook, pp. 34-38.section of our textbook, pp....
View Full Document

Page1 / 2

Solutions_to_In_Class_Problem_no._1 - MGMT 407.04 Summer...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online