Question
A company has two divisions.The first produces an operating system for mobile devices, such as smartphones.The other division manufacturers and markets its own smartphone.Of course,
A company has two divisions.The first produces an operating system for mobile devices, such as smartphones.The other division manufacturers and markets its own smartphone.Of course, the company's smartphone runs on its own operating system (NOTE:Each smartphone contains one operating-system chip).Marginal cost of a chip in the operating-system division is $75, while marginal cost in the smartphone division--excluding the cost of the chip--is a constant $25 (thus, in this problem, AVC = MC).In addition, the price elasticity of demand for this company's smartphone is a constant -1.14 at every price level, with demand for the smartphone given by the function:
Q = 80,000P-1.14., where P is the price per smartphone, and Q is the quantity of smartphones demanded, in millions.
For this entire problem, assume pricing is conducted over the long run (AC = AVC:all costs are variable).
Assume there is no external market for the operating system (the operating-system chips are strictly inputs to the company's smartphone division).
- How do I find the formula for profit-maximizing price of a smartphone?
- How do I find the formula to calculate the profit-maximizing quantity of smartphones (in millions).
- How to determine if the profit (both divisions combined), is in millions?
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