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A television station is considering the sale of promotional DVDs. I can have the DVDs produced by one of two suppliers. Supplier A will charge the station a set-up fee of $1,200.00 plus $2.00 for each DVDs; supplier B has no set-up fee and will charge $4.00 per DVD. The station estimates its demand for the DVDs to be given by Q=1,600-20P, where P is the price in dollars and Q is the number of DVDs. (price equation is P=8-Q/200.)
a. Suppose the station plans to give away the video. How many DVDs should it order? From which supplier?
b. Suppose instead that the station seeks to maximize its profit from sales of the DVDs. What price should it charge? How many DVDs should it order from which supplier? (hint: Solve two separate problems, one with supplier A and one with supplier B, and then compare profits. In each case, apply the MR=MC rule.)
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Total Total Average Fixed Variable Total Total Marginal Quantity Cost Cost Cost Cost Cost 0 $40 0 40 X X 1 40 55 95 95 55 2 40 75 115 57.50 20 3 40 90 130 43.33 15 4 40 110 150 37.50 20 5 40 135 175 35 25 6 40 170 210 35 357 40 220 260 37.14 50 8 40 ..
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