Suppose the firms demand curve for its product increases fro

Suppose the firm\'s demand curve for its product increases from D_1 to D_2. The firm\'s marginal cost is given by MC +5Q. Solve for the change in the profit-maximizing quantity resulting from the increase in demand. Solve for the change in the profit-maximizing price resulting from the increase in demand.

Solution

MC = 5Q

a) As demand increases from 4 to 6 Revenue changes from (4*10) to (6*15)

So with change in Q = 2, Change in TR (total revenue) = 90 - 40 = 50

So MR = change in TR with respect to change in Quantity = 50/2 = 25

Profit Maximizing Quantity is at point where MC = MR

so 5Q = 25 and Q = 5.

b) Since Q = 5, profit maximizing P = 12.5