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IAI Actuarial Core Principles · Business Economics · Profit maximisation under imperfect competition

A Mumbai-based insurance broker faces the linear demand curve P = 200 - 4Q, where P is the fee in rupees and Q is the number of policies arranged. What is its marginal revenue when Q = 10?

Marginal revenue is Rs 120. Total revenue is 200Q minus 4Q squared, so marginal revenue is 200 minus 8Q. At Q equal to 10 this gives 200 minus 80, which equals Rs 120.

  1. ARs 40
  2. BRs 120
  3. CRs 160
  4. DRs 80Correct
  5. Rs 200

Explanation

TR = PQ = 200Q - 4Q^2. MR = dTR/dQ = 200 - 8Q. At Q = 10, MR = 200 - 80 = 120... check: 200 - 80 = 120, so the key must be Rs 120.

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