The Inverse Demand for Shampoo Is Given by P =

question 65

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. In equilibrium, firm 1 will earn $ ____ in profit.

• A) 1,741.37
• B) 2,725.04
• C) 3,482.74
• D) 4,466.41

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Definitions:

Overapplied

Refers to a situation where the manufacturing overhead allocated to products is more than the actual manufacturing overhead incurred.

Underapplied

Describes a situation in cost accounting when the allocated manufacturing overhead costs are less than the actual overhead incurred, leading to a discrepancy that needs adjustment.

Job-Order Costing System

A costing system used to accumulate and assign costs to custom orders, projects, or jobs, typically in manufacturing or services.

Overapplied

When the overhead cost allocated to products exceeds the actual overhead costs incurred, requiring adjustment.