Hook, Inc., is an international manufacturer of bulk antibiotics for the animal feed market. Dr. Mike Jones, head of marketing and research, seeks your advice on an appropriate pricing strategy for Pharmed Caplets, an antibiotic for sale to the veterinarian and feedlot-operator market. This product has been successfully launched during the past few months in a number of test markets, and reliable data are now available for the first time. The marketing and accounting departments have provided you with the following monthly total revenue and total cost information:
TR = $900Q - $0.1Q2
TC = $36,000 + $200Q + $0.4Q2
1) What is the revenue maximizing output and price? Why is this different from profit-maximizing output and price?
2) If the government places a ceiling at a price of $820 this is below profit maximizing price. Will the firm continue to produce at this price? If so, what output and price will they choose? Or will it shut down? Why?