Question

A monopoly is considering selling several units of a homogeneous product as a single package. Analysts at your firm have determined that a typical consumer’s demand for the product is Qd = 90 − 0.5P, and the marginal cost of production is $110.

a. Determine the optimal number of units to put in a package. 35units (correct)

b. How much should the firm charge for this package?

Answer 1

The firm should charge $3,850 for a package of 35 units, based on the demand equation and the given marginal cost of production.

Step-by-step explanation:

To determine how much the firm should charge for a package of 35 units, we first need to find the optimal price per unit by using the demand equation Qd = 90 − 0.5P. Since the optimal number of units to put in a package is 35, we set Qd to 35 and solve for P (price):

35 = 90 − 0.5P
− 55 = − 0.5P
P = 110

Therefore, the optimal price per unit is $110. Since the package contains 35 units, the firm should charge 35 units x $110 per unit, resulting in a total price of $3,850 for the package.