How would a company's profitability in their toothpaste division would be impacted by an expansion. Assess the profit potential using marginal analysis.
It is assumed that the toothpaste market is perfectly competitive and the current price of a case of toothpaste is $42.00. Estimated its marginal cost function to be as follows: MC=.006Q.
1. How many cases of toothpaste should be produced in order to maximize profits.
2. What happens if its decided to raise prices unilaterally in this toothpaste market?
3. What results from the profit maximizing level of output if the market price suddenly rose to $54 per case? Why the output level changes?
4. Would the company benefit by advertising in this perfectly competitive market?
5. What would happen to the price of toothpaste, would it rise or fall? What would happen to the profits the company makes?