This is a standard monopoly model question. (JALT acts like a monopolist). So, find the point where marginal cost (MC) = marginal revenue (MR). MC is easy. its the $4000 fee paid to Harvey.
Total revenue is P*Q = 5000Q+40Q^2. Marginal revenue is the first derivitive of total revenue. So, MR = 5000-80Q. Now MC=MR is 4000=5000-80Q. Solve for Q.
I get Q=50. This is the profit maximizing (or loss minimizing point) Now check if the firm makes a profit at Q=50. Take it from here.
I need help on some homework questions for an MBA-level Managerial Economics class. Here is the first question.
1. JALT, Inc. is a new firm offering investment consultant services to the rich. Harvey Milkemnow, having had experience in this area, is the potential new research manager. Milkemnow is personally obligated to render the service but insists on charging $4,000 per client per month. The fixed costs of running the operation are $3,000 per month and Milkemnow's fees are the only variable cost. JALT has determined that it has the following monthly demand schedule:
P = $5,000 - $40.00Q where
P is the price that clients pay monthly
Q is the number of clients
Should JALT, Inc. take up the venture?
If someone could at least tell me where to get started, it would be much appreciated. I don't even know where to start. :( Thanks!
4 answers
My bad, I re-get Q=12.5. take it from here.
Thank you so much for your help! Your explanation definitely helps me a lot. :)
I got Q=12.5 as well. I'm assuming this is correct, thanks
1 answer