An electronics firm carries out a small-scale test launch of a new low-priced pocket calculator. It estimates
from this test that if it went into full-scale production it would sell between 1,000 and 2,500 calculators
per month, and that its monthly revenue in thousands of shillings over this range of sales could be
represented by the equation:
R = – x2 + 5x
Where: x is the monthly output in thousands of calculators (it is assumed that it sells its entire output).
From experience of calculator production, the firm estimates its marginal cost in thousands of shillings
could be represented by the equation:
MC = x2 – x + 2
and that its fixed costs will be Sh.500 per month.
Required:
i) Determine the average cost and revenue equations for this firm.
ii) Determine the profit-maximizing output, the price that should be charged to maximize profit, and how
much each calculator will then cost to make.