Reference no: EM13188830
PRESTO Products, Inc, manufactures small electrical appliances and has recently introduced an innovative new dessert maker for frozen yogurt and tofu that has the clear potential to offset the weak pricing and and sluggish volume growth experienced during recent periods.
Monthly demand and cost relations for Presto's frozen dessert maker are as follows:
P = $60 - $0.005Q TC = $100 000 + $5Q + $0.0005Q2
MR = ?TR/?Q = $60 - $0.01Q MC = ?TC/?Q = $5 + $0.001Q
a. Set-up a spreadsheet for Presto output (Q), price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), total profit (p), and marginal profit (Mp). Establish a range for Q from 0 to 10 000, in increments of 1000 (i.e., 0, 1000, 2000, 3000, ........., 10 000). [e.g., table similar to one shown in Q1].
b. At what price/output combination is total profit maximized? Why? At what price/output combination is total revenue maximized? Why?
c. Compare the profit-maximizing and revenue-maximizing price/output combinations, and discuss the differences. When would short-run revenue maximization lead to long-run profit maximization?
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