A firm faces the linear demand curve $Q = 120 - 4P$ and has total cost $TC = 20Q + 0.5Q^{2}$.\n\n(a) Find the output level that maximises profit.\n(b) At that output, calculate the price elasticity of demand and state whether a 5 % increase in price would increase or decrease total revenue.

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Accepted Answer

Q* = 20/3 ≈ 6.67 units; elasticity = -17 (elastic); total revenue would decrease

Gce Model Questions Vol1 2019 Economics Question 43

A firm faces the linear demand curve \(Q = 120 - 4P\) and has total cost \(TC = 20Q + 0.5Q^{2}\).\n\n(a) Find the output level that maximises profit.\n(b) At that output, calculate the price elasticity of demand and state whether a 5 % increase in price would increase or decrease total revenue.

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Gce Model Questions Vol1 2019 Economics Question 43

A firm faces the linear demand curve \(Q = 120 - 4P\) and has total cost \(TC = 20Q + 0.5Q^{2}\).\n\n(a) Find the output level that maximises profit.\n(b) At that output, calculate the price elasticity of demand and state whether a 5 % increase in price would increase or decrease total revenue.

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Master the Exam!

A firm faces the linear demand curve \(Q = 120 - 4P\) and has total cost \(TC = 20Q + 0.5Q^{2}\).\n\n(a) Find the output level that maximises profit.\n(b) At that output, calculate the price elasticity of demand and state whether a 5 % increase in price would increase or decrease total revenue.