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QUESTION
21ST CENTURY INSURANCE OFFERS MAIL-ORDER AUTO MOBILE INSURANCE TO PREFERED RISK DRIVERS IN THE LOS ANGELES AREA.
21ST CENTURY INSURANCE OFFERS MAIL-ORDER AUTO MOBILE INSURANCE TO PREFERED RISK DRIVERS IN THE LOS ANGELES AREA. THE COMPANY IS THE LOW-COST PROVIDER OF INSURANCE IN THIS MARKET BUT DOESN'T BELIEVE ITS $750 ANUAL PREMIUM CAN BE RAISED FOR COMPETITIVE REASONS. ITS RATES ARE EXPECTED TO REMAIN STABLE DURING COMING PERIODS; HENCE, P = MR = $750. TOTAL AND MARGINAL COST RELATIONS FOR THE COMPANY ARE AS FOLLOWS: TC= $2,500,000 + $500Q + $0.005Q2, MC = @TC/@Q = $500 + $0.01Q. CALCULATE THE PROFIT-MAXIMIZING ACTIVITY LEVEL.
