Use the following information for Questions 14 and 15
QC Electronics produces small, hand-held calculators. The final product division of the company manufactures all parts of the calculator except the display unit, and then assembles, packages and distributes the product. The display units of the calculators are produced by a separate division of the firm called View Displays.
View Displays could sell the display units in the open market to a number of other manufacturers at a standard price of $.25. There is vigorous competition in the display unit industry and it is unlikely that any but the going price can be obtained.
Management has determined that the demand curve for quantity sold per month of the hand-held calculators is:
Q c = 12,500 - 2000P c , so that MR c = 6.25 - .001Q c )
while QC's marginal cost for hand-held calculators, excluding the cost of the display module is:
MC c = .005Q c
In addition, management has determined that the marginal cost for the display modules is:
MC d = .0005Q d
-The firm will maximize profit at what quantity?
A) 250
B) 500
C) 750
D) 1000
E) 1250

Question

Use the following information for Questions 14 and 15
QC Electronics produces small, hand-held calculators. The final product division of the company manufactures all parts of the calculator except the display unit, and then assembles, packages and distributes the product. The display units of the calculators are produced by a separate division of the firm called View Displays.
View Displays could sell the display units in the open market to a number of other manufacturers at a standard price of $.25. There is vigorous competition in the display unit industry and it is unlikely that any but the going price can be obtained.
Management has determined that the demand curve for quantity sold per month of the hand-held calculators is:
Q c = 12,500 - 2000P c , so that MR c = 6.25 - .001Q c )
while QC's marginal cost for hand-held calculators, excluding the cost of the display module is:
MC c = .005Q c 
In addition, management has determined that the marginal cost for the display modules is:
MC d = .0005Q d 
-The firm will maximize profit at what quantity?
A) 250
B) 500
C) 750
D) 1000
E) 1250

Quizplus · Accepted Answer

To maximize profit, the firm will produce where MC = MR for both the calculator and display module:
MCS1U1B1cS1U1B0 = MR1U1B1cS1U1B0 = MRS1U1B1cS1U1B0 + MR1U1B1dS1U1B0 = 6.25 - .001QS1U1B1cS1U1B0 + .25
Simplifying gives:
.00625QS1U1B1cS1U1B0 = 6.5
QS1U1B1cS1U1B0 = 1040
Therefore, the firm will produce 1000 calculators and purchase 1000 display modules from View Displays. Since the going price is $.25 for the display module, the additional cost to QC Electronics is:
1000 x $.25 = $250
The total cost to QC Electronics is:
(1000 x .005) + $250 + (1000 x .0005) = $6.50
The revenue for QC Electronic is:
1000 x (12.5 - .005(1000)) = $7500
Therefore, QC Electronics will maximize its profit at:
$7500 - $6.50(1000) = $69.50 x 1000 = $69500
Thus, the best choice is D.

Use the Following Information for Questions 14 and 15