An auto-service establishment has estimated its monthly cost function as follows:
TC = 6000 + 10 Q
where Q is the number of cars it services each months and TC represents its total cost. The firm is targeting 35,000 net monthly profit servicing 2000 cars.
a. What price should the firm charge to realize the targeted profit?
b. What would be its (cost-based) markup ratio?
b. Now suppose the demand curve the firm faces is:Q = 3000 - 50 P. Is the firm going to achieve its profit goal? Explain.
c. If your to answer to (b) is "no", what would be the optimal markup ratio for this firm?
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