Question

Suppose that WBM can produce any quantity of cars at a constant marginal cost equal to $$20,000 and a fixed cost of $10 billion. You are asked to advise the CEO as to what prices and

Answer 1

You are asked to advise the CEO as to what prices and quantities WBM should set for sales in ... Profit-maximizing firms should produce where marginal revenue equals marginal cost.

Answer 2

EQE=4,500,000−100PEEQE=4,500,000−100PE in Europe and UQU=1,300,000−20PUUQU=1,300,000−20PU in the United States.

Assume that WBM can restrict sales in the United States to authorized WBM dealers only.

(a) What quantity of WBMs should the firm sell in each market?

(b) What should the price be in each market?

(c )What should WBMs total profit be?

Profit Maximization

Firms generally set prices to maximize profits. This question addresses a profit-maximization problem in a world of price and market discrimination.

Answer and Explanation:

Profit-maximizing firms should produce where marginal revenue equals marginal cost.

For Europe, first restate the demand equation in terms of price:

...

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