Barbara owns the sole hairdressing salon in a small country town. She has estimated the demand...

Barbara owns the sole hairdressing salon in a small country town. She has estimated the demand and marginal revenue for her product.

They are P = 84 - 2Q (quantity) and MR = 84 - 4Q, respectively. She also experiences a constant marginal cost of $16.

A) What is Barbara’s profit-maximising quantity?

B) What price should Barbara charge at that profit-maximising quantity?

C) Assume the average total cost (ATC) at the profit maximising output is $20. Calculate the profit or loss Barbara makes.

D) Barbara is considering expanding the size of her salon and increasing daily output to Q = 25. Is this a good/bad idea? Why/why not?

Thank you!

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Expert Solution

Rahul Sunny answered 1 year ago

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