CASE STUDY 1
P = $60 - $0.005Q
MR= $60- $0.01Q
TC= $100,000 + $5Q + $ 0.0005Q²
MC=$5+0.001Q
Question C: Profit Maximization
MR = MC
60-5 = 0.001Q+0.01Q
55 = 0.001Q
Q = 55/0.011
Q = 5000 P = 60- 0.005 (5000)
P = 60 - 25
P = $35

TR = Q X P
TR = 5000 - 35
TR = $175,000

TC = 100 000 + (5 X 5000) + (0.0005 X 5000²)
TC = $137,500

π = TR - TC = $175 000 - 137 500 = $37,500

The profit is maximized when Marginal Cost is the same as Marginal Revenue, and the Marginal Profit is equal to zero. The profit is at the maximum level of RM37,500. This can be reached when we produce 5,000 unit of items, at a selling price of $35.

Question D: Comparison of Profit Maximization VS Revenue Maximising Price/Output Combination
With profit maximization (as in C), we will maximise profit at 5,000 unit produced at the selling price of $35 per unit. At this point, the total revenue will be $175,000 and the total cost will be $137,500; giving us the final profit of $37,500.

However, with revenue maximization, we will maximise revenue at 6,000 of unit produced at the price of $30 per unit. At this point, the total revenue will be at its highest point, which is equivalent to $180,000. The total cost will be $148,000; giving us the final profit of $32,000.
Revenue-maximising combination yields lower revenue by $5,500 compared to profit-maximizing combination.

Since all real-time production occurs in the short-run, in order for a company to maximise its profit, it should:
a) increase the unit production if marginal cost is less than marginal revenue (this will add revenue for each additional unit of output);
b) decrease production if the marginal cost is greater than marginal