Portland Fluid Control, Inc., (PFC) is a major supplier of reverse osmosis and ultrafiltration equipment, which helps industrial and commercial customers achieve improved production processes and a cleaner work environment. The company has recently introduced a new line of ceramic filters that enjoy patent protection. Relevant cost and revenue relations for this product are as follows:
TR = $300Q - $0.001Q2
MR = ∂TR/∂Q = $300 - $0.002Q
TC = $9,000,000 + $20Q + $0.0004Q2
MC = ∂TC/∂Q = $20 + $0.0008Q
Where TR is total revenue, Q is output, MR is marginal revenue, TC is total cost, including a risk-adjusted normal rate of return on investment, and MC is marginal cost.
A. Compute PFC’s optimal monopoly price/output combination.
B. Compute monopoly profits and the optimal profit margin at this profit-maximizing activity level.