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Compare the profit-maximizing output

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The Beaches Beverage Company produces Wavy Gravy, a blue-colored cola designed to compete with Coke, Pepsi, RC, and various others, including store brands. The inverse demand function for Wavy Gravy is P = 102 - 2Q, where P is the price and Q is the quantity of crates (and each crate contains 240 cans of cola). The cost of producing Wavy Gravy is given by the cost function TC = 700 + 2Q + 0.5Q2.

a. Beaches is currently producing 15 crates of Wavy Gravy per period and selling them for $57.50 per crate. The company hires you as a consultant to determine whether it is profit-maximizing. What would you tell it?

b. How much more profit will they earn each period if they take your advice?

c. While "the cola industry" is dominated by two giant manufacturers (i.e., Coke and Pepsi), most analysts describe competition among the various cola brands as monopolistically competitive. What characteristics of the industry make this so? Explain.

d. Compare the profit-maximizing output and price for Wavy Gravy with the output and price that would arise in the long run if this industry were perfectly competitive. What do consumers receive in exchange for the price premium that they pay for a monopolistically competitive industry?

Reference no: EM132162796

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