You are the manager of College Computers, a manufacturer of customized computers that meet the specifications required by the local university. Over 90 percent of your clientele consists of college students. College Computers is not the only firm that builds computers to meet this university’s specifications; indeed, it competes with many manufacturers online and through traditional retail outlets. To attract its large student clientele, College Computers runs a weekly ad in the student paper advertising its “free service after the sale” policy in an attempt to differentiate itself from the competition. The weekly demand for computers produced by College Computers is given by Q = 1,400 − 4P, and its weekly cost of producing computers is C(Q) = 1,200 + 2Q2.

If other firms in the industry sell PCs at $300, what quantity and price of computers should you produce to maximize your firm’s profits?

Instructions: Round your response to the nearest whole number.

Quantity: _ computers

Instructions: Round your response to the nearest penny (two decimal places).

Price: $_

What long-run adjustments should you anticipate?

multiple choice
Entry by other firms along with increased profits.
Exit by other firms along with decreased profits.
Entry by other firms, reducing your profits.
Exit by other firms, increasing your profits.

The quantity and the price of computers that should be produced to maximize the firm’s profits are 78 units and 330.50 respectively.

The weekly demand for computers is given as: Q = 1,400 − 4P

Therefore, the inverse weekly demand for computers will be: P = 350 - 0.25Q

The total revenue will be gotten by multiplying the price and quantity. This will be: TR = (350 - 0.25Q)Q = 350Q - 0.25Q²

Therefore, marginal revenue will be:

MR = 350 - 0.5Q

The weekly cost of producing computers is C(Q) = 1,200 + 2Q² Therefore, the marginal cost will be:

MC = 4Q

The profit maximizing condition will be:

MR = MC

350 - 0.5Q = 4Q

4.5Q = 350

Q = 77.78 = 80 approximately

The quantity produced should be 80 units.

Since P = 350 - 0.25Q

P = 350 - 0.25(78)

P = 350 - 19.50

P = 330.50

The price is 330.50

Therefore, the long-run adjustment that should be anticipated is the entry by other firms, reducing your profits.

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