Question

It is assumed that the toothpaste market is perfectly competitive and the current price of a case of toothpaste is $42.00. CPI has estimated its marginal cost function to bas follows: MC=.006Q.

The Board would like to know how many cases of toothpaste should be produced in order to maximize profits.
What would happen if CPI decided to raise prices unilaterally in this toothpaste market?
What would happen to the profit maximizing level of output if the market price suddenly rose to $54 per case? Explain why the output level changes.
Could CPI benefit by advertising in this perfectly competitive market?

Answer 1

Do a little research, then take a shot. What do you think?

Hint: Maximize profit where MC=MR. In a perfectly competitive market MR=P.
Hint2: the demand curve facing a firm in a perfectly competitive market is a horizontal line. (in economics terms: perfectly elastic)

Answer 2

Profits for producing toothpaste is 42 - .006 = 41.994

Answer 3

2.a case of toothpaste is $42.00. CPI has estimated its marginal cost function to bas follows: MC=.006Q.

What would happen if the prices unilaterally raised in this toothpaste market?