Question

Suppose all individuals are​ identical, and their monthly demand for Internet access from a certain leading provider can be represented as p​ = 5 minus − one half 1 2 q where p is price in​ $ per hour and q is hours per month. The firm faces a constant marginal cost of​ $1. The profit maximizing two minus −part pricing results in the firm selling
A. 5 hours.
B. 10 hours.
C. 8 hours.
D. 4.5 hours.

Answer 1

Answer:

The firm will maximize profit at 4 hours per month and a price of 3

Explanation:

the profit maximinizing is at the point at which marginal revenue(sale for an additional unit) equals marginal cost (cost for an addditional unit)

marginal cost: 1

marginal revenue is the slope of the total revenue function:

total revenue(TR) = price x quantity

being p = 5 - 1/2q

TR = (5 - 1/2q)q = -1/2q^2 +5q

we calcalte dTR/dq = -1q +5

and now we equalize marginal revenue with marginal cost:

1 = -1q + 5

-4 = -1q

q = 4