Details: The presentation to the Board went extremely well, and you made some clear points about the need to expand in the U.S. and abroad.
One question that arose during the meeting was about how the firm's profitability in their toothpaste division would be impacted by the expansion. The Board asked you to assess the profit potential using marginal analysis.
It is assumed that the toothpaste market is perfectly competitive and the current price of a case of toothpaste is $42.00. CPI has estimated its marginal cost function to bas follows: MC=.006Q.
The Board would like to know how many cases of toothpaste should be produced in order to maximize profits.
1. What would happen if CPI decided to raise prices unilaterally in this toothpaste market?
2. What would happen to the profit maximizing level of output if the market price suddenly rose to $54 per case? Explain why the output level changes.
3. Could CPI benefit by advertising in this perfectly competitive market?
4. If CPI was somehow able to monopolize the market what would happen to the price of toothpaste, would it rise or fall? What would happen to the profits CPI makes via their toothpaste division?