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Suppose a market has a demand function of Qd = 20 - 0

Economics Dec 17, 2020

Suppose a market has a demand function of Qd = 20 - 0.5P. At which of the following prices will total revenue be maximized?

a. 30

b. 10

c. 20

d. 40

Expert Solution

If P = 30

Qd = 20 - 0.5(30) = 20 - 15 = 5

Total revenue (TR) = P * Q = 30 * 5 = 150

If P = 10

Qd = 20 - 0.5(10) = 20 - 5 = 15

TR = 10 * 15 = 150

If P = 20

Qd = 20 - 0.5(20) = 20 - 10 = 10

TR = 20 * 10 = 200

If P = 40

Qd = 20 - 0.5(40) = 20 - 20 = 0

TR = 40 * 0 = 0

Then the answer is C. The revenue is maximized at a price of 20.

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