Problem: Restaurant Marketing Services, Inc., offers affinity card marketing and monitoring systems to fine dining establishments nationwide. Fixed costs are $600,000 per year. Sponsoring restaurants are paid $60 for each card sold, and card printing and distribution costs are $3 per card. This means that RMS's marginal costs are $63 per card. Based on recent sales experience, the estimated demand curve and marginal revenue relations for are:
P = $130 - $0.000125Q
MR = dTR/dQ = $130 - $0.00025Q
Question 1: Calculate output, price, total revenue and total profit at the revenue-maximizing activity level.
Question 2: Calculate output, price, total revenue and total profit at the profit-maximizing activity level.
Question 3: Compare and discuss your answers to parts A and B.