Question

The rainwater brewery produces beer, which it sells to distributors in barrels. the brewery incurs a monthly fixed costof $12000 and the variable cost per barrel is $17. the brewery has developed the following profit function and demand constraint.

maximize Z = vp- 12000-17v
subject to v = 800 - 15p
a. solve a nonlinear programming model for the optimal price

Answer 1

The profit-maximizing quantity for a firm is where marginal cost equals marginal revenue, above average variable cost. Below this cost, a firm should shut down to minimize losses.

Step-by-step explanation:

Profit-maximizing quantity is a key concept in economics and business, particularly when discussing the operations of a perfectly competitive firm. To find this quantity, it is helpful to calculate total revenue, marginal revenue, total cost, and marginal cost for different levels of output.

The profit-maximizing quantity is the output level where marginal cost equals marginal revenue, provided the price is above average variable cost. If the price falls below average variable cost, the firm minimizes its losses by shutting down, as it cannot cover its variable costs. This is a vital decision-making point for businesses in a competitive environment.