The Inverse Demand for Shampoo Is Given by P =

question 103

Multiple Choice

The inverse demand for shampoo is given by P = 30 - 0.03Q, where P is the price per bottle in dollars and Q is bottles brought to market in hundreds. There are two manufacturers in the local market. Firm 1's cost function is given by C₁ = 0.05q₁², where q₁ is the number of bottles it brings to market. Firm 2's cost function is given by C₂ = 0.03q₂², where q₂ is the number of bottles it brings to market. The two firms are Cournot competitors who set output so that Q = q₁ + q₂. The profit maximizing level of output for Firm 1 is ____.

• A) 14,753
• B) 21,312
• C) 29,506
• D) 36,065

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Definitions:

Law of Diminishing Marginal Utility

The economic principle that states as a person increases consumption of a product, there is a decline in the marginal utility that person derives from consuming each additional unit of that product.

Total Utility

The total satisfaction or benefit derived from consuming a particular quantity of goods or services.

Law of Diminishing Marginal Utility

An economic principle that states the additional satisfaction a consumer gets from purchasing one more unit of a product will lessen with each additional unit purchased.

Marginal Utility

The additional satisfaction or utility that a consumer derives from consuming one more unit of a good or service.