A manufacturer of spare parts faces the demand curve,
P = 800 - 2Q,
and produces output according to the cost function, C = 20,000 + 200Q + .5Q2:
a. Create a spreadsheet modeled on the example shown.7 (The only numerical value you should enter is the quantity in cell B7. Enter appro- priate formulas to compute all other numerical entries.)
b. What is the firm's profit-maximizing quantity and price? First, deter- mine the solution by hand, that is, by changing the quantity value in cell B7. (Hint: Keep an eye on MR and MC in finding your way to the optimal output.)
c. Use your spreadsheet's optimizer to confirm your answer to part (a).
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A
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B
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C
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D
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E
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F
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G
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1
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2
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THE OPTIMAL OUTPUT OF SPARE PARTS
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3
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4
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5
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Quantity
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Price
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Revenue
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Cost
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Profit
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6
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7
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20
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760
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15,200
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24,200
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-9,000
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8
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9
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10
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MR
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MC
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Mprofit
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11
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12
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720
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220
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500
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13
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