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Q = 400 – 3P + 4T + .6A Where: Q = quantity demanded in units...

Q = 400 – 3P + 4T + .6A

Where:

Q = quantity demanded in units

P = price in dollars

T = tastes and preferences

A = Advertising expenditures in dollars

We are currently operating at the following values:

A = 10,000

T = 8000

P = 2800

In addition, suppose MC is 2800.

  1. Derive the firm’s current demand curve and calculate and interpret the firm’s current price elasticity of demand.

  2. Given you answer in b, should the firm increase or decrease output in order to maximize profits? Explain and show your work on a well labeled graph.

  3. What is the profit maximizing output and price? Show and explain all your work and match up your answer to your work in part b.

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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