Chptr 6 Homework Answers
Revenue vs. Profit Maximization.
The Best Buy Company, Inc., is a leading
specialty retailer of consumer electronics, personal computers, entertainment
software and appliances.
The Company operates retail stores and commercial Web
sites, the best known of which is bestbuy.com.
Recently, this site offered a Sony 600-
Watt Home Theater with combination 600-total-watt surround sound receiver, 5-disc
DVD player with DVD, CD, CD-R/RW and MP3 playback and digital AM/FM tuner
plus matching 6-speaker set including subwoofer.
At a price of $1,100, weekly sales
totaled 2,500 units.
After a $100 online rebate was offered, weekly sales jumped to
Using these two price-output combinations, the relevant linear demand and
marginal revenue curves can be estimated as:
P = $1,200 - $0.04Q and MR = $1,200 - $0.08Q
Calculate the revenue-maximizing price-output combination and revenue level.
If Best Buy
s marginal cost per unit is $800, calculate profits at this activity
level assuming TC = MC
Calculate the profit-maximizing price-output combination.
revenues and profits at the profit-maximizing activity level.
To find the revenue-maximizing price-output rental rate, set MR = 0, and solve for Q.
TR = P
= ($1,200 - $0.04Q)Q
= $1,200Q - $0.04Q
= $1,200 - $0.08Q = 0
0.08Q = 1,200
Q = 15,000