Answer to Question #306413 in Microeconomics for berhanu

Question

The marginal cost of producing the Kindle is estimated at $126 per unit. Apply the MR = MC rule to find the output and price that maximize Kindle profits.

Considering that each Kindle sold generates $100 in e-book profits, determine Amazon’s optimal quantity and price with respect to the total profit generated by Kindle and e-book sales. What is the implication for Amazon’s pricing strategy?

Answer 1

b)

$R=PQ\space \space AP+bQ^ 2$

$MR=a+2bQ$

$=294-2(0.000035)Q$

$MR=126$

$MC=126$

$Optimal \space Qty= 2,400,000.00$

$Price = 210.00$

c)

The MR of Kindle is effective $\$ \space 100 \space more$

$MR=394-2(0.000035) Q$

$MR=126$

$MC = 126$

$Optimal\space Qty=3,828,571.43$

$Price=160.00$

Amazon's optimal quality is higher.

Amazon can further decrease its price from the current 189 to 160