Reference no: EM132460765

Bavarian Crystal Works designs and produces lead crystal wine decanters for export to international markets. The production manager of Bavarian Crystal Works estimates total and marginal production costs to be:

TC = 10,000 + 40Q + 0,0025 Q2

and

MC = 40 + 0.005Q

where costs are measured in US dollars, and Q is annual decanter production. Because Bavarian Crystal is only one of many crystal producers in the world market, it can sell as many of the decanters as it wishes for $70 apiece. Total and marginal revenue are

TR = 70Q MR = 70

where revenues are measured in US dollars, and Q is annual decanter production.

a. What is the optimal level of production of wine decanters? What the marginal revenue of the last decanter sold.

b. What is the total revenue, total cost, and profit from selling the optimal number of wine decanters?

c. At the optimal level of production, an extra decanter can be sold for $70, thereby increasing total revenue by $70. Why does the manager of this firm not produce one more unit?